There was good news and bad news on the data front in the US on Friday.
The good news is, the Chicago PMI bounced back sharply, following two consecutive abysmal prints which served to stoke recession fears. In July, the gauge printed 44.4, a grievous miss versus consensus and 5 handles below the most pessimistic estimate from two-dozen economists surveyed. That was even worse than June’s contractionary 49.7 read.
For August, the barometer came in at 50.4, nearly besting the most optimistic estimate from 31 economists (the range was 45-51).
Under the hood, the picture was somewhat mixed, but let’s just say that considering how bad the last two prints have been, this was a relief, and appears to “validate” a similar bounce in regional Fed surveys seen earlier in the month.
Meanwhile, personal spending beat estimates, rising 0.6% in July. That’s just the latest evidence to support the contention that the US consumer is holding up well. Retail sales have risen for five consecutive months and consumption was, of course, the bright spot in the second quarter GDP report.
But, the bad news on Friday was that the final read on University of Michigan consumer sentiment came in markedly worse that the preliminary print, which was already the second-worst of the Trump presidency. The final read for August was 89.8. That is, officially, the worst consumer sentiment reading of the Trump era.
The 8.6-point drop from July’s 98.4 is the largest since 2012.
In the color that accompanied the preliminary survey, Richard Curtin, director of the survey, warned that the Fed cut had seemingly backfired. “The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession”, he remarked.
Fast forward a couple of weeks and Curtin delivers a rather stark assessment of the tariffs.
“The recent decline is due to negative references to tariffs, which were spontaneously mentioned by one in three consumers”, he said Friday, adding that “Trump’s tariff policies have been subject to repeated reversals amid threats of higher future tariffs [and while] such tactics may have some merit in negotiations with China, they act to increase uncertainty and diminish consumer spending at home”.
So, as the backward-looking data on consumption continues to suggest the US consumer was feeling fine at the start of the third quarter, it will be interesting to see how that holds up going forward in light of recent developments.
Don’t forget that University of Michigan consumer sentiment is one of three factors BofA’s David Woo used to examine historical election cycles in a Thursday note. Suffice to say that when sentiment is declining along with ISM manufacturing and the rate of job creation, the incumbent faces an uphill battle for reelection.
Friday’s consumer sentiment data comes on the heels of poll data showing that for the first time since the election, more Americans think the economy is getting worse than better.
The same poll showed that for the first time ever, Americans think Trump’s policies are doing more harm than good.