MARKET SNAPSHOT: 'Something Has To Give:' How Long Can The American Consumer Shoulder The Global Economy?
14 October 2019 - 11:41PM
Dow Jones News
By Chris Matthews, MarketWatch
Consumer confidence remains a powerful engine, but investors
worry it will soon sputter
If the U.S. economy is headed for a significant slowdown, nobody
told the American consumer.
Even as economic growth abates and business investment and
confidence has faltered in the face of an ongoing U.S.-China trade
dispute, the U.S. consumer has continued to spend money and reflect
confidence in sentiment surveys.
The latest evidence is the University of Michigan's consumer
sentiment survey
(http://www.marketwatch.com/story/consumer-sentiment-climbs-to-3-month-high-in-october-on-easing-worries-over-trade-war-2019-10-11)
released Friday, which rose to a three-month high of 96, beating
consensus expectations and remaining near record levels.
The reading is bullish for U.S. equities as it predicts the U.S.
consumer will continue to spend at high rate headed into the
holiday season, but it also stands in stark contrast to other
measures of the economy, including recent surveys by the Institute
for Supply Management of the manufacturing
(http://www.marketwatch.com/story/slumping-us-manufacturers-experience-worse-month-since-end-of-great-recession-ism-finds-2019-10-01)
and services sectors
(http://www.marketwatch.com/story/service-side-of-economy-grows-at-slowest-pace-in-3-years-ism-finds-adding-to-market-gloom-2019-10-03)
and measures of business executive confidence, which fell to the
lowest level since the first quarter of 2009 in October.
"I'm not sure if we've seen this disparity between positive
consumer sentiment and negative business confidence at this level,"
Michael Arone chief market strategist at State Street Global
Advisors, told MarketWatch. "From my perspective, something has to
give. Either businesses have to be more confident, or you're likely
to see more rollover on the consumer data."
One might think that business executives have a better handle of
the trajectory of the U.S. economy than the consumer, but
historically that's not always the case. As Sundial Capital
Research pointed out on Twitter, previous instances of high
consumer confidence and low executive confidence have actually
turned out well for stocks.
(https://twitter.com/sentimentrader/status/1182033787359768581)
JJ Kinahan, chief market strategist at TD Ameritrade said that
in the near term, it's unlikely that American shoppers will slow
their spending. "People are employed and when they are employed
they spend money," he said. "Heading into the holiday season, I see
no reason why the consumer would slow barring some disaster."
There are, however, a few signs in the data that may suggest
that weakness in the U.S. manufacturing sector is affecting the
larger services sector and the overall labor market, Liz Ann
Sonders chief investment strategist at Charles Schwab told
MarketWatch.
She said that while some analysts are eager to write off
manufacturing weakness as inconsequential due to that sector's
shrinking role in the American economy, "there's a reason why
indices of leading economic indicators rely on manufacturing. It's
because there's a multiplier effect from the sector that filters
through to others."
That manufacturing weakness has also coincided with falling
business investment is also a concern, Sonders argued. She said
that during 60% of quarters when economic growth has been negative
since 1945, consumer spending stayed positive while business
investment shrank. "Manufacturing weakness often tips over into the
consumer side," she said.
There are signs that this might already be under way, she
warned, pointing to a Wednesday report which showed that job
openings fell in August
(http://www.marketwatch.com/story/us-job-openings-fall-in-august-to-a-1-12--year-low-as-hiring-and-the-economy-slow-2019-10-09)
for the third month in a row, to a one-and-a-half-year low and to
data showing that the average hours worked per week has been
trending lower
(https://fred.stlouisfed.org/graph/fredgraph.png?g=p8Qp) in recent
months.
Though applications for unemployment benefits -- a key leading
indicator of the labor market and the broader economy -- have yet
to show any signs of weakness, Sonders said investors should
monitor these data closely, given that businesses appear eager to
cut costs and postpone new investment decisions.
Investors will get a fresh reading of U.S. consumer strength on
Wednesday, when the Commerce Department will issue its estimate of
retail sales growth for the month of September. That same day will
see updates on business inventories and National Association of
Home Builders' index.
On Thursday, the Labor Department will issue its weekly estimate
of new claims for jobless benefits, and the Commerce Department
will issue readings of housing starts, building permits, and
industrial production for the month of September. On Friday, the
Conference Board will update its index of leading economic
indicators.
Tuesday will mark the unofficial start to third-quarter earnings
season, with several major financial services companies reporting
their results, including Dow components Goldman Sachs Group Inc.
(GS) and JPMorgan Chase & Co. (JPM) as well as Citigroup Inc.
(C) .
On Wednesday, aluminum manufacturer Alcoa Corp. (AA) will
deliver results, along with Bank of America Corp. (BAC),
International Business Machines Corp. (IBM) and Netflix Inc.
(NFLX)
Thursday will see Altassian Corp. Plc.(TEAM) reporting as well
as Morgan Stanley(MS) and Philip Morris International Inc. (PM)
(END) Dow Jones Newswires
October 14, 2019 08:26 ET (12:26 GMT)
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