Crisis Of Confidence

Consumer confidence tumbled in August amid Delta variant hand-wringing and inflation concerns.

Earlier this month, the University of Michigan’s consumer sentiment gauge plunged to the lowest in a decade on what the survey’s Chief Economist Richard Curtin described as “an emotional response, mainly from dashed hopes that the pandemic would soon end.”

That opened up a rather glaring disconnect between the Michigan gauge and the Conference Board’s index, which Morgan Stanley’s Mike Wilson helpfully highlighted while gently noting that although the bank isn’t expecting a downturn, “the spread… has never been this wide and it’s usually a warning of recession.”

On Tuesday, the Conference Board’s gauge “caught down” to the Michigan survey. At 113.8, August’s read was well below the 123 consensus expected and just barely beat the lowest estimate from 55 economists (110).

The nine point plunge (figure below) was blamed primarily on the Delta variant. “Concerns about the Delta variant — and, to a lesser degree, rising gas and food prices — resulted in a less favorable view of current economic conditions and short-term growth prospects,” Lynn Franco, Senior Director of Economic Indicators at The Conference Board, said, in a press release.

The headline index now sits at the lowest since February. A downward revision to July’s reading made August the second monthly decline in a row.

The Present Situation Index fell 10 points, while the Expectations gauge dropped all the way to 91.4 from 103.8.

Although spending intentions for homes, cars and major appliances deteriorated “somewhat,” the good news is that “the percentage of consumers intending to take a vacation in the next six months continued to climb.”

Despite obvious jitters tied to the virus, “it is too soon to conclude this decline will result in consumers significantly curtailing their spending in the months ahead,” Franco remarked.

Fingers crossed. JPMorgan generally agrees. Consumer fundamentals are still supportive for stocks despite nascent signs of weaker data stateside, the bank’s Mislav Matejka said, adding that the jobs market is still improving, savings rates are still elevated and soaring asset prices (from homes to stocks) are creating a positive wealth effect.

The familiar figure (above), is something of a “chart crime,” but it’s particularly poignant this month. US equities hit record after record, even as consumers started to notice rising prices, surging virus caseloads and, now, a rising death toll from the variant.

As a reminder: In order to benefit from the vaunted “wealth effect,” you need to own assets. 10% of Americans own 88% of the stocks. And regular people are likely finding it increasingly difficult to afford a down payment on a home.