Bad, Good, Whatever

Here’s hoping bad news is good news.

US consumer confidence slid in August and an underlying gauge of expectations slipped back near levels that historically presaged recessions.

That sounds like an unfortunate development, but at a time when markets are palpably concerned about the read-through of a resilient US economy for monetary policy and the neutral rate, a disappointing look at the consumer might be just what the doctor ordered.

The Conference Board’s gauge printed 106.1 for August, 10 points below consensus. July’s headline was revised lower. The month-to-month drop was the largest in two years.

Recall that the index surged over the preceding two months, as the resolution of the debt ceiling standoff in D.C., falling inflation and rising stocks helped buoy sentiment.

“Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular,” Conference Board chief economist Dana Peterson remarked. That’s consumers for you: Always complaining about the price of life’s luxuries, like food and fuel.

Notably, the labor differential narrowed to 26.2 from 32.4. That’s the lowest in 28 months. “Assessments of the present situation dipped in August on receding optimism around employment conditions,” Peterson went on, adding that “hard data confirm that employment gains have slowed, overall wage increases are less generous compared to a year ago, and the average number of weeks of unemployment is ticking upward.”

Consistent with that message, Tuesday’s JOLTS update showed job openings fell in July and quits decreased markedly. That’s good news for the Fed’s efforts to engineer a soft landing and it bodes well for disinflation, but it could undercut consumer moods.

Of course, that’s just fine with policymakers — or with monetary policymakers anyway. Services inflation won’t come down until wage growth moderates and in order for that to happen, you need demand to cool. Worsening consume moods suggest more subdued demand.

Consumers’ expectations for rates rose this months after falling in June and July, and their outlook for stocks worsened. Still, the share of respondents saying recession is “somewhat” or “very” likely moved lower, even as it remained elevated in general.

For market participants, it was easy enough to view the soft JOLTS figures and disappointing read on confidence as a positive development given the ostensibly dovish implications for the Fed and bullish takeaway for rates, which’ve been a thorn in the side of equity investors this month.

Market commentators, on the other hand, were quick to suggest the data now points to a “Wile E. Coyote” moment. Job vacancies are drying up suddenly, confidence is crumbling and so on.

So, bad news is good news or bad news is bad news, depending on who you ask. I penned a few abrasive jokes about the fickle nature of market narratives, but decided against publishing them. The absurdity speaks for itself.