Latest / Markets with Megan: A Quick Financial Markets Update / Anticipating the Impact of Consumer Confidence on Market Dynamics | Episode 131 | 05-10-24
Transcript
- 0:01Megan Horneman: Another disappointing economic report, and the market really does not seem to care too much about it.
- 0:05Megan Horneman: I'm Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors.
- 0:09Megan Horneman: I'm coming to you today with our regular segment of Markets with Megan.
- 0:12Megan Horneman: It is Friday, may 10th, and we got the preliminary reading on the University of Michigan Consumer Confidence Survey this morning.
- 0:20Megan Horneman: Unfortunately, this survey, it looks at the broad sentiment, but then it also breaks it out into two different categories the consumer sentiment on both the current conditions and then future expectations for the economy.
- 0:33Megan Horneman: All three of these actually declined much more than expected and all three are now sitting at a six-month low.
- 0:40Megan Horneman: If you look at the index, that's for future expectations on the economy, that actually saw its biggest decline monthly decline since June of 2022.
- 0:51Megan Horneman: 40% of those people surveyed are worried about the labor market and they expect the unemployment rate to rise over the next year.
- 1:00Megan Horneman: That was compared to 32% in prior months.
- 1:03Megan Horneman: And then, when looking at interest rates, only 25% of those surveyed think that interest rates will fall in the year ahead and this is contrary to what the market is pricing in.
- 1:14Megan Horneman: At least one rate cut this year.
- 1:16Megan Horneman: That was compared to 32% in April.
- 1:19Megan Horneman: So consumers are getting much more nervous.
- 1:21Megan Horneman: This typically is a leading indicator for spending.
- 1:25Megan Horneman: So we'll get some more information next week on retail sales to see if this is filtering into how consumers are spending.
- 1:32Megan Horneman: But what is more important in this report is the inflation expectations from consumers.
- 1:38Megan Horneman: We look at inflation in a lot of different ways.
- 1:40Megan Horneman: We look at it at headline consumer price index, producer price index, the Fed's PCE index that they like to look at.
- 1:49Megan Horneman: But if you have consumers that are thinking that prices are going to be higher in the future, what happens is that can be even more inflationary because they'll spend now with the anticipation that prices will be higher in the future.
- 2:01Megan Horneman: And what does that do?
- 2:03Megan Horneman: Just fuels inflation.
- 2:05Megan Horneman: So this index also in the survey they survey what the expectations for inflation are in the next year and then also in the next five to 10 years.
- 2:14Megan Horneman: The expectations for consumers it's actually been increasing for the past two months but it jumped up much more than expected to 3.5% Again.
- 2:24Megan Horneman: That's also a six-month high and then the five to 10-year inflation.
- 2:28Megan Horneman: This tends to be relatively well anchored.
- 2:31Megan Horneman: That also has increased now for two months and that's 3.1%.
- 2:35Megan Horneman: So consumers don't think prices are getting any better.
- 2:38Megan Horneman: Their sentiment is declining and most likely, this is going to filter into the economic data in the second quarter.
- 2:44Megan Horneman: Now, we'll be back next week.
- 2:46Megan Horneman: There's a lot of economic data, so you'll be seeing a lot of me next week.
- 2:49Megan Horneman: We'll get two of the big inflation readings CPI and PPI.
- 2:54Megan Horneman: I mentioned retail sales that we'll get, and we will also get some housing data.
- 2:59Megan Horneman: So we'll be back next week.
- 3:00Megan Horneman: Have a wonderful weekend and if you have any questions or comments, please feel free to reach out to podcast at Verdence.
- 3:20Megan Horneman: com.
- 3:20Megan Horneman: Thank you.