Consumer Sentiment Research Notes

by Jim Baird on August 26, 2016

C2Sentiment slips modestly in August; Q2 GDP revised down to 1.1%

Consumer optimism slipped modestly in recent weeks, as the collective assessment of current economic conditions diminished. The University of Michigan Consumer Sentiment Index edged fractionally lower in August to 89.8 from 90.0 in July, falling short of expectations for a moderate increase.

The Index of Consumer Expectations rose to 78.7, suggesting that consumers were slightly less pessimistic about the future. Relative to a year ago, however, the Index remains down, indicative of some persistent skepticism about the future.

Nonetheless, the overall consumer mood remains relatively upbeat, as solid – and still improving – labor market conditions, low inflation, and better household balance sheets are supporting not only a generally optimistic outlook about the present, but renewed strength in consumer spending in recent months.

Today’s report on Q2 GDP reinforced the latter point, as personal consumption grew by 4.4% during the quarter, anchoring an otherwise lackluster quarter. Business investment, housing, inventory drawdowns, and tighter spending by state and local governments were all headwinds to the economy during the second quarter, but brisk consumption – particularly on goods – was the critical support to the economy’s 1.1% advance.

With the critical stretch run in the Presidential race now at the doorstep, the country’s attention will increasingly focus on the candidates, their policies, and the polls. Will the Fed take action at the September FOMC meeting or defer a potential rate hike until December? Expectations have shifted again in recent days, and a modest increase in the fund’s rate before the election is viewed as increasingly possible once again.

How these issues will impact sentiment in the near-term remains to be seen, but both have the potential to be a catalyst for market volatility and for some slippage in the collective consumer mood. At the same time, the strength of recent spending trends and strengthening wage gains should remain supportive of spending growth and the economy as a whole.

Market Perspectives (August 2016)

by Jim Baird on August 22, 2016

Executive Summary

  • U.S. equity markets enjoyed a strong month as anxiety levels dropped from their post-Brexit highs and volatility remained subdued. Small-caps took the lead with the Russell 2000 gaining 6.0%, followed by mid-caps with 4.6%, and large-caps adding 3.7%.
  • International stocks finished the month on a high note as well, with stocks in developed markets (as represented by the MSCI EAFE) and emerging markets (MSCI EM) adding 5.1% and 5.0%, respectively.
  • Most fixed income indices recorded modest gains in July; high yield bonds led the pack with a 2.7% gain, while the Barclays Aggregate added 0.6%. Municipal bonds also recorded small gains.
  • The Fed kept rates on hold following its July meeting, and reiterated that it will remain data dependent – in a “wait and see” mode – as it digests and interprets incoming data with regards to the economy.
  • The initial estimate of second quarter GDP came in at 1.2%, below expectations. On top of this disappointing result, first quarter growth was revised downward from 1.1% to 0.8%.

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July Retail Sales Research Notes

August 12, 2016

Retail sales flat in July, fall short of expectations The recent resurgence in the labor market conditions resulted in stronger job growth, but did nothing to embolden consumers to increase spending. The result? An unquestionably disappointing month for retailers in July. Retail sales were flat for the month, easily falling short of expectations for a […]

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July’s Employment Situation Research Notes

August 5, 2016

Strong job gains in July easily exceed expectations; jobless rate steady at 4.9% The jobs market took another step forward in July, posting strong job gains for the second consecutive month.  The tally of 255,000 new jobs created during the month was lower than the upwardly revised 292,000 in June, but easily exceeded consensus expectations […]

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Q2 GDP Research Notes

July 29, 2016

US economy grows at lackluster 1.2% pace for Q2 The good news is that, as expected, the economy did grow faster in the second quarter than in the first quarter; the bad news is that growth was still lackluster, coming in at just 1.2% — about half the anticipated pace. On top of the disappointing […]

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Special Commentary

July 29, 2016

EXECUTIVE SUMMARY After nearly seven years of near-zero interest rates in the United States, the Federal Reserve took its first step toward a more normalized interest rate environment in December 2015.  Outside of the U.S., many central banks continue to be focused on aggressive and unconventional easing efforts. The degree of variance across central banks […]

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July’s Consumer Confidence Research Notes

July 26, 2016

Consumer confidence holds steady in July, easily beating expectations Consumers remained in an upbeat mood in July, as the Conference Board Consumer Confidence Index was virtually unchanged from the prior month at 97.3, dipping just 0.1 from the June reading of 97.4.  That result easily exceeded consensus expectations for larger decline. Consumers were modestly more […]

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Economic Perspectives (Second Quarter 2016)

July 18, 2016

This quarter, we review the current U.S. economic expansion within a historical context, along with a number of other economic indicators, to provide insight on expectations for the balance of the year. While the outcome of the Brexit vote is expected to be a near-term negative for the British economy, the economic impact here in […]

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Consumer Sentiment Research Notes

July 15, 2016

Sentiment dips unexpectedly in July The collective mood of consumers moderated in early July, as the outcome of the Brexit vote introduced a greater element of uncertainty, particularly among high income earners. The University of Michigan Consumer Sentiment Index dipped unexpectedly to 89.5 in July from 93.5 in June. Economists had expected a much more […]

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Market Perspectives (July 2016)

July 15, 2016

Executive Summary The leading story this month was Brexit, which sent shockwaves through capital markets — a two-day drop of 5% or more across major indices — as the U.K. unexpectedly voted to leave the European Union. Domestic stocks rebounded by the end of June, however, led by mid-caps, which achieved a 0.5% return, followed […]

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