The preliminary University of Michigan sentiment survey was largely a non-event on Friday.
Sentiment collapsed to a Trump-era low in August, but has rebounded since and was largely unchanged at 95.7 in the first read for November (versus 95.5 on the final read last month).
The range of forecasts was from 92 to 98.5.
Current conditions slipped, while expectations rose. Expected inflation over the next year was unchanged, while the outlook for prices over 5-10 years ticked up to 2.4% from 2.3% in October.
Despite being generally a snoozer, the color that accompanied the report was some semblance of interesting.
First off, spontaneous negative references to tariffs were still mentioned by one-in-four consumers this month. That underscores the notion that even as we inch closer and closer to an interim trade deal that is widely expected to bring tariff relief (Trump’s Friday morning comments notwithstanding), the spat with China continues to serve as a psychological drag.
More interesting, though, was the commentary from Richard Curtin (the survey’s chief economist) on the impeachment inquiry.
“References to the impact of impeachment on economic prospects were virtually non-existent, mentioned by less than 2% in October and November”, he writes, adding that “the lack of impact on economic prospects is broadly similar to Clinton’s but not Nixon’s impeachment inquiry”.
He goes on to explain the “critical difference” as follows:
During Clinton’s impeachment, economic conditions remained very favorable; indeed consumer sentiment was at its most favorable levels ever recorded. In contrast, Nixon’s impeachment inquiry started at the same time as the oil embargo in October 1973, with oil prices quadrupling over the next six months. While consumers voiced a rapid collapse in optimism, many believed Nixon was too distracted to attend to their concerns about escalating inflation and unemployment, or that the economy would fall into recession in late 1973.
The read-through for Trump is obvious – if the economy were to take a turn for the worse in the near-term, consumers may start to fret that Trump will be too preoccupied with defending himself against allegations of impropriety and illegality to focus on steering the economy.
Poll data in August clearly indicated that voters were beginning to doubt his economic stewardship, but mercifully, the data has broadly improved (with the exception of ISM manufacturing). Given the drama in D.C., another swoon wouldn’t be digested well by consumers, who have shouldered the burden of sustaining the expansion.
Commenting further, Curtin notes the following:
The current performance of the economy, in contrast, is neither as bleak as Nixon’s nor as good as Clinton’s. The strongest aspect of the current economy has been job and wage gains. Although consumers have become somewhat more cautious spenders, they see no reason to engage in the type of retrenchment that causes recessions. While most consumers do not anticipate year-to-year increases in the unemployment rate, the majority of consumers expect the unemployment rate to remain largely unchanged at its lowest level in 50 years.
Here’s the chart on that:
That’s the good news for Trump. The bad news is that if those expectations turn out to be too optimistic and the economy does falter, there isn’t much he can do. Larry Kudlow can do all the ruminating he wants, but another supply-side stimulus package will be DOA in the Democratic House.
And besides, with the deficit having ballooned to $984 billion (on the way to $1 trillion+ next year), the optics around additional stimulus will not be great for the GOP, assuming there are any Republicans left who care about the party’s traditional commitment to budget discipline and fiscal rectitude.