Consumers have a dour view of the current economy but their outlook for the coming months has strengthened modestly. While the Conference Board Consumer Confidence data released today shows mixed results for consumers, it also points to weakening demand within the inflation-ridden services sector, and separately, the softening of tight labor conditions that have fueled wage pressures.<\/p>\n\n\n\n
Other data show that consumers are piling on more credit card debt and are increasingly reporting having trouble making ends meet. Additionally, consumers are increasingly seeking to supplement their incomes with side gigs. Investors, meanwhile, are lowering their expectations for corporate earnings while the economy continues to slow with higher interest rates and persistent inflation.<\/p>\n\n\n\n
The Conference Board Consumer Confidence Index climbed slightly in March to 104.2, up from 103.4 in February. While the headline number increased, consumers\u2019 views of the business environment and labor market as measured by the Present Situation Index declined from 153.0 in February to 151.1.<\/p>\n\n\n\n
While inflation has been curtailed slightly among goods as the Fed has tightened monetary policy, the service sector has shown persistent and troubling inflation in large part because consumers have pent up demand for entertainment and traveling after sheltering in place and social distancing during the Covid-19 pandemic. However, in a special Conference Board question about future spending, consumers said they expect to reduce discretionary spending on visiting amusement parks, going to the movies, dining out and personal lodging. The decline in sentiment for current conditions is also encouraging because it reflects weakening conditions in the job market. In past months, inflation has been worsened by wage pressures as a shortage of workers has created tight labor conditions.<\/p>\n\n\n\n
Consumers\u2019 anticipation of cutting back on discretionary spending happens as many Americans are struggling with inflation. Last month, 62% of American adults reported living paycheck to paycheck, up from 60% in January, according to a LendingClub survey. The survey found that 44% of Americans have a side job while a Flex Jobs survey found that that 69% of working professionals either have a side job or want one. Consumers also appear to be dealing with inflation by relying on credit cards, with outstanding balances increasing to an all-time high of $968 billion, particularly alarming at a time of rising rates.<\/p>\n\n\n\n
On an optimistic note, consumers expect conditions to improve with the Conference Board\u2019s Expectation Index climbing to 73.0 from 70.4, driving the headline number higher. The boost to the headline number was a pleasant surprise to analysts, who expected a reading of 101.<\/p>\n\n\n\n
Markets are responding to the news with yields climbing across the Treasury duration curve. The 2-year and 10-year Treasury maturities are up 8 and 4 basis points (bps), recovering some of the lost ground following the recent period of banking stresses. The Fed put out the fire by initiating the Bank Term Funding Program, which boosted liquidity levels and added to the Fed\u2019s asset holdings, which dampened the long-duration interest rate risk within many banks\u2019 portfolios. Equities are declining, led by the interest-rate sensitive tech sector with the NASDAQ Index down 0.7% while the S&P 500 Index is down 0.3%. Crude oil is up 0.5% and gaining momentum at $73 a barrel, a huge leap from the $65 level reached a couple of weeks ago. The suppression of banking fears in the short term, continued demand from China and a halt of exports from the 450,000 barrel per day northern Kurdistan region of Iraq are propelling prices higher. The Dollar Index is subdued, down 0.3% to 102.50 as global investors see the light at the end of the Powell tunnel.<\/p>\n\n\n\n
From a longer-term perspective, investors are assessing a weakening outlook for corporate earnings. As of the middle of March, 108 S&P 500 companies had issued earnings per share guidance for the current quarter. Of those, 83 issued negative EPS guidance, which exceeds the 5-year average of 57 and the 10-year average of 65. Analysts have also downgraded their earnings outlook for the quarter. In December, analysts expected earnings to decline 0.3% year over year but as of mid-March, they estimated that earnings would decline 6.1%. The economy is also sagging with the Federal Reserve now expecting GDP to weaken to 0.4% this year while unemployment rises.<\/p>\n\n\n\n
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