Saying One Thing, Doing Another

“Along with the ongoing impact of inflation, attitudes have also been weighed down by rising borrowing costs, declining asset values and weakening labor market expectations,” Joanne Hsu, director of the University of Michigan sentiment survey, said Wednesday.

It was a grim, albeit familiar, assessment of the mood among American consumers. Final readings on the survey’s headline and component indexes for November all confirmed a deterioration from October, concentrated in perceptions of current conditions.

I’d be remiss not to note that the gloom apparent in the survey data hasn’t fully manifested in spending. Best Buy on Tuesday reported better-than-expected results and lifted its outlook, for example, prompting one analyst to declare the worst of the company’s sales declines over. The shares surged (figure below).

Dick’s likewise raised its outlook albeit while flagging an “uncertain macroeconomic backdrop” on the call.

Americans still have plenty of headroom on credit cards and seem reluctant to retrench despite elevated inflation, dwindling cash buffers and the generalized sense of economic malaise evident in sentiment surveys. They’re saying one thing and doing another.

Speaking of economic malaise and surveys, the flash reads on S&P Global’s PMIs for the US this month were bad. Both the manufacturing and services indexes posted sizable misses. Both are now in contraction territory (figure below).

“Demand conditions worsened as the fourth quarter progressed, with new orders across the private sector falling in November at the fastest pace since the initial pandemic wave in May 2020,” S&P Global said, in the color accompanying the release. “With the exception of the early stages of the pandemic, the decrease in total new sales was the sharpest since 2009.”

Hiring was subdued this month commensurate with the slowdown in demand, the survey suggested.

All of this could, I suppose, be amenable to the “bad news is good news” spin to the extent cooler demand is the Fed’s objective and depressed consumers are less likely to spend. But, as noted above, these anecdotal accounts of economic gloom aren’t yet showing up in any uniform way across the real economy. Housing is beset, but even there, the “recession” (as the NAHB is fond of describing the downturn) is interrupted at fairly regular intervals by upside data surprises like Wednesday’s surprisingly robust read on new home sales.

The good news from the PMIs was that price pressures are moderating in step with slower demand.

“While the reduced supply chain stress is partly a symptom of lower demand, the alleviation of supply delays removes a key driver of inflationary pressures and has helped moderate the overall rate of input cost inflation to a near two-year low,” Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said, before noting that November saw “increasing numbers of suppliers, factories and service providers offering discounts to help boost flagging sales.”

Hiring in the US economy, he wrote, “has slowed to a crawl” in Q4 amid cost-cutting efforts. We’ll see if that’s borne out by next week’s jobs report. Initial claims did post a meaningful increase last week, according to data released Wednesday. But at 240,000, the number of filers is hardly indicative of recession.


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One thought on “Saying One Thing, Doing Another

  1. The correlation between the published consumer confidence indices and retail spending has long been surprisingly low. (I can recall quarreling with a Barron’s writer about this 15+ years ago.) ISM surveys still seem to be more predictive.

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