‘Sunshine’

The US consumer is feeling better about the prospects for the economy.

Or so said anecdotal evidence released on Wednesday, as Americans looked forward to a stagflationary Christmas.

The Conference Board’s gauge snapped a two-month streak of declines with a consensus-beating 108.3 headline print, the highest in eight months (figure below).

The range of estimates, from 58 economists who pored over models or tossed darts blindfolded — and I’m not sure there’s much difference — was 98 to 105. So, this was a notable beat.

Of course, “notable” is a relative term. The final event risks of 2022 came last week with CPI and the December FOMC meeting, and the final top-tier data of the year (November personal income and spending) will be released into a pre-Christmas Eve void on Friday.

The consumer confidence reading was only as meaningful as it could be under those circumstances. Both the present situation and expectations gauges rose from November.

Lynn Franco offered a constructive take on inflation that was welcomed by markets, if only because there was little else to trade. “Inflation expectations retreated in December to their lowest level since September 2021, with recent declines in gas prices a major impetus,” she said, noting that consumer trepidation around big-ticket items (like houses) hasn’t abated. The goods-to-services shift “will continue in 2023, as will headwinds from inflation and rate hikes,” Franco added.

Again, this is as incremental (or not) as you want it to be. Bloomberg’s Cameron Crise, feeling chipper apparently, called it a “pretty punchy ray of sunshine” that suggests “the bears are unlikely to have it all their own way from here.”

BMO’s Ian Lyngen delivered a more subdued assessment. “Overall, the data offered a mixed take on the state of the real economy — albeit consistent with the Fed’s objectives at this state in the cycle,” he said, summarizing the overall takeaway from Wednesday’s data, which, in addition to the upbeat read on consumer psychology, included another below-consensus print from the beleaguered housing market.

As the Conference Board’s Franco pointed out, the Expectations Index is “still lingering around 80 — a level associated with recession.”