Reading the Economic Tea Leaves Through Consumer Confidence | Episode 121 | 04-12-2024

Megan discusses what's shaking consumer confidence and how it could influence your next financial move as she unpacks the latest University of Michigan Consumer Confidence Report. She breaks down the numbers and the underlying sentiments that signal where the economy might be heading. Megan doesn't hold back in explaining why these figures are more than just statistics—they're a crystal ball that the Federal Reserve and investors alike are watching intently.

With a dip in the equity markets this week, Megan points to disappointing corporate earnings and escalating geopolitical tensions. There are elements intertwined with consumer expectations that, to Megan, forecast potential shifts in spending behavior and could add fuel inflation. This episode is essential listening for anyone looking to stay informed on the latest economic data and the economic indicators that matter most.

https://youtu.be/40PX5PCucPA

The inflation situation isn't letting up everybody. This is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming to you today. It is Friday, April 12th, and we're going to discuss the University of Michigan Consumer Confidence Report that came out today. This report comes out each month. It comes out twice. It comes out in the first part of the month with a preliminary reading and then it comes out in the second half of the month with the final reading, and what we're seeing in the first two weeks of April is that consumer confidence is sliding.

Let's dig into a couple of the numbers and then we'll talk about what came out from an inflation perspective in this report. First of all, the headline number this did decline. It was the second time in the past four months. The current conditions this report is it was the second time in the past four months. The current conditions this report is made up of two different components the expectations for the future and the confidence there, and then confidence in current economic conditions. Both of these fell for the month. The current conditions and the confidence there that fell the most in. That's the lowest we've seen in seven months. And when you look at the future expectations, that also did decline. So from a consumer confidence perspective, it's not great. This does tend to be a leading indicator for spending, for consumer spending. But what's more concerning and what?

One of the reasons why the markets are down today is not necessarily that we have weak confidence. We've had many readings of weak confidence throughout the past year, but it was the inflation expectations. So the University of Michigan also polls the consumers and what they think the inflation rate will be over the next year and over the next five to 10 years. The Fed looks at this, because if there is a consumer that thinks inflation is going to be higher in a year, then what happens is sometimes consumers will pull spending forward and then it just exacerbates the inflation problem. And what we saw is expectations for inflation over the next year. They moved higher, now to 3.1%, so moving in the opposite direction of where the Fed wants to see. They want to see it down to 2% and then over the next five to 10 years, where the Fed definitely wants to see that anchored closer to 2%, consumers are expecting inflation to be around 3%. So this is a concern. The Fed will be looking at this. We'll hear comments about it from the Federal Reserve, but markets are lower today.

A little bit has to do with this. A little bit has to do with the fact that we started earnings season and JP Morgan had some disappointing earnings in their report. And then the last thing is geopolitical tensions that are heating up between Israel and Iran. All of this is contributing to a pretty poor week in the equity market. That's all we have this week. We hope everybody has a wonderful weekend. We'll be back next week. We've got some big data reports retail sales information on housing so we'll be back to report there. If you have any questions or comments, please feel free to reach out to podcasts at verdence dot com and make sure you hit that subscribe button and the alert bell so you get notified every time we put a new episode out with Markets with Megan. Thank you.