Consumer Expectations For Rate Cuts Highest Since GFC As Trade Worries Persist

Confidence improved in September after plunging to a Trump-era nadir in August, the preliminary read on University of Michigan sentiment showed Friday.

The survey printed 92.0 for September, up from 89.8 in the final read for August. The forecast range was 86.0 to 95.0.

Current conditions rose to 106.9 versus 105.3 last month, while the expectations gauge printed 82.4 versus 79.9 in August.

As you can see, this is a feeble rebound, and sentiment remains near the lows for this administration. In fact, the preliminary September reading is actually worse than the preliminary read for August.

“While the uptick was across both current and expected economic conditions, the early September rebound was not widespread across age or income subgroups as it only fell among consumers under age 45 and among households with incomes in the top third”, Richard Curtin, director of the survey, said, adding that “these two groups account for about half of all spending”.

The expected change in median prices over the next 5-10 years dropped to 2.3% again. That’s tied for a record low.

Meanwhile, consumers are anticipating more rate cuts. As Curtin goes on to note, “net declines in interest rates [are] more frequently expected at present than anytime since the depths of the Great Recession in February 2009”. Have a look at the spike in the yellow line over there on the right-hand side.

The irony, of course, is that those kind of spikes are almost always accompanied by a recession, which is precisely why, in the color that accompanied the preliminary read in August, Curtin warned that the July rate cut had backfired, by stoking recession fears.

Additionally, elevated expectations mean consumers aren’t likely to be surprised by a rate cut, as they’ve now baked it into their assessment. This also means any hawkish disappointment will be amplified.

“These expectations are likely to diminish the impact on spending from a quarter-point rate cut, but if rates remain unchanged, it may increase negative reactions by consumers”, Curtin warns on Friday.

Finally, if you’re wondering whether tariff worries have abated, the answer is no.

“Concerns about the impact of tariffs on the domestic economy also rose in early September, with 38% of all consumers making spontaneous references to the negative impact of tariffs, the highest percentage since March 2018”, Curtin rather dryly points out.

March of 2018 was the month when Trump announced the metals tariffs. Investor sentiment has clearly suffered.


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