Confidence, a Trade War, Consumers, and Recessions - September 3, 2019

There has been no shortage of talk and angst over the inversion of the yield curve, trade war anxieties, and chatter the economy may slip into a recession. However, a quick glance at consumer confidence suggests most of us are brushing aside any concerns.

Despite perceived economic headwinds, consumer confidence in August slipped just 0.7 points to a still-strong 135.1. In fact, recent levels are only exceeded by the late 1990s.

Note that consumer confidence typically peaks prior to the onset of a recession. We’re off last year’s high, but the more recent trend is far from negative.

In my view, one’s personal situation has the biggest influence on sentiment. Today, the unemployment rate and first-time claims for unemployment insurance are low, job security is reasonably high, and job opportunities abound.

While most folks may have some familiarity with the trade dispute, it’s yet to hit close to home.

Spend and spend some more

Regarding economic activity, we are seeing some of the strongest and most consistent increases in consumer spending since the economic expansion began in late 2009, per U.S Census and U.S. BEA data.

Importance: consumer spending accounts for almost 70% of the U.S. economy (U.S. BEA).

Yes, there are problems with the global economy, and U.S. manufacturing activity has been soft. While we did experience some market volatility in August, the S&P 500 Index is down just 3.3%% from its prior closing high on July 26 (St. Louis Federal Reserve/MktWatch data).

An important reason: lower interest rates have helped, but most investors are not sniffing out a near-term, profit-killing recession.