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The US consumer has been rattled: Morning Brief

Myles Udland
Markets Reporter

Wednesday, September 25, 2019

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It’s grim all around

Consumer spending is the most important driver of U.S. economic growth.

And recent data suggests this year's blockbuster run for shoppers could be coming to an end.

On Tuesday, The Conference Board's September reading on consumer confidence showed confidence sharply declined in September.

But the headline reading of 125.1 — which is still elevated by historical standards — belies more troubling drops in confidence regarding consumers’ view of the labor market and their expectations for the economy.

The Conference Board’s expectations index dropped to 95.8 in September, the lowest reading since January. And the “jobs plentiful” component of the report, which measures the proportion of consumers who think jobs are easy to find, logged its 5th-largest monthly decline on record in September, according to Bespoke Investment Group.

"The escalation in trade and tariff tensions in late August appears to have rattled consumers," said Lynn Franco, senior director of economic indicators at The Conference Board.

"In one line: Grim all round," wrote Ian Shepherdson, chief U.S. economist at Pantheon Macroeconomics following Tuesday's report.

"[The] proportion of people expecting conditions to worsen over the next six months rose to a six-year high," Shepherdson added. "It’s now in line with the readings seen just before the recessions of 1990, 2001, and 2007, so it needs to be watched closely."

"Despite the continued low level of jobless claims, the net share of consumers reporting jobs are hard to get eased back to -33.2 from -38.3," noted Michael Pearce, senior U.S. economist at Capital Economics.

"The survey also suggests that those short-term worries are more than offsetting any boost to spending from lower interest rates. The share of consumers with plans to buy a house, a vehicle or major appliances have all trended lower over recent months."

The report's present situation index also dropped sharply in September, which Neil Dutta at Renaissance Macro notes has typically been a useful gauge in judging big changes in employment.

"The message today is not especially encouraging," Dutta writes. "Consumers see slower jobs growth."

Two weeks ago, we highlighted work from economists at Deutsche Bank who argued the economy was close to a "tipping point."

Deutsche Bank’s thesis was simple: an escalating trade fight was likely to lead to slower job growth. And slower job growth would lead to slower consumer spending.

Right now, consumer spending is what’s keeping this expansion alive. In the second quarter, consumption grew at annualized rate of 4.7%, the best reading since the crisis.

But if consumers are starting to view the labor market less favorably, a resulting pullback in spending puts continued economic growth at risk.

By Myles Udland, reporter and co-anchor of The Final Round. Follow him @MylesUdland

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