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Fed Themes and The Consumer - October 30, 2018

Kansas City Fed’s Unifying Themes

As markets gyrated over the past week, with bugaboos aplenty, the Kansas City Fed’s Manufacturing Survey data was a refreshing reprieve. The numbers themselves weren’t exceptional. “Manufacturing activity continued to expand, but at a slower pace,” and, “expectations for future activity eased slightly, but remained positive.” However, the comments were clear and succinct, with every single respondent referencing either tariffs, labor, or the supply chain. Tariffs had the expected results of increased costs and decreased availability. Labor was hard to find or fickle, with employers struggling to hire and retain workers. And the supply chain was feeling the brunt of both above issues, with added complications from lead times.

The Dallas Fed Manufacturing Outlook Survey was similar in tone. “[A]ctivity continued to expand in October, albeit at a slower pace.” Despite the slowing pace, perceptions of business conditions improved remarkably as “fewer than 3 percent of firms noted that their outlook worsened, the lowest share since 2004.” The comments from respondents echoed those of the Kansas City Fed, with a slightly more ominous tone, perhaps due to the “vast amounts of rain in Texas”. Housing also made mention in some of the respondents’ remarks, with most of the comments taking a negative outlook, including the concise analysis from a respondent in Wood Product Manufacturing, “Housing is slowing down.” This is in line with much of the data we covered last week as well as the most recent Pending Home Sales YoY data. However, Homeownership data from the US Census shows improving homeownership rates and the highest homeownership rates for those under 35 since 2013. Perhaps it’s a bad sign that housing numbers are weak in spite of the increase in homeownership rates, but that’s a discussion for another time.

 “Just out: Consumer Confidence hits highest level since 2000”

 The above tweet, from President Trump highlights just how good the recent Consumer Confidence Survey data was from the Conference Board. The record is in part due to the previous reading of 138.4 being revised down to 135.3, but this month’s unrevised 137.9 does take the title, for now, and came in ahead of estimates. Lyn Franco, Senior Director of Economic Indicators at the Conference Board said, “Consumers’ assessment of present-day conditions remained quite positive, primarily due to strong employment growth” and posited that the Expectations Index reading meant “that consumers do not foresee the economy losing steam anytime soon.” Consumers’ assessment of current conditions improved, as did consumers’ optimism about the short-term future, but the “outlook for the labor market was somewhat mixed.” We will see if this mean further deviation of Income Expectations from the Atlanta Wage Growth Tracker. Additionally, we would warn that the cutoff date for the recent Conference Board Survey was October 18 or roughly 5% in the S&P 500 ago. Time will tell if the consumer can remain optimistic should equity weakness continue.