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Regional Feds and The Consumer - January 2, 2019

Dallas, Kansas, and Richmond! Oh My!

 As a Dallas Fed respondent reminded us in the latest survey, though “One month does not make a trend”, Regional Fed data has been less than rosy. The Dallas Fed’s headline Business Activity Index missed expectations by 134%, hitting -5.1, “its lowest level since mid-2016”. This is healthy when compared to the Richmond Fed Manufacturing data, which missed by more than 150%, which, put drily meant, “manufacturing activity weakened”. New orders and shipments were to blame. “At -25 the shipments index was its lowest reading since April 2009”. Local business conditions also hit -25, “it’s the lowest reading on record”. The most recent Kansas Fed Manufacturing data was, by comparison, a ray of sunshine, missing by less than 100% (analysts were on the right side of zero), but still showed that growth slowed. “Most month-over-month indexes fell from the previous month’s reading, although the majority remained in positive territory”.

The silver lining is that outlooks improved or, at least, remained positive. In Kansas, “the future composite index increased from 16 to 20, and the future employment and capital expenditures indexes also rose moderately”. In Richmond, “most firms were optimistic that conditions would improve”. Meanwhile in Texas, most indexes for future manufacturing activity “posted double-digit declines this month but remained solidly in positive territory”. All this optimism may have some positive benefits in the form of increased CapEx and stronger employment. Whether or not these plans come to fruition is up in the air, as one Dallas respondent pointed out, “This is a hard market to read”.

 Consumer Confusion?

 While the Regional Fed data cited above indicate a positive employment environment for the consumer, recent survey data has been mixed. The University of Michigan Survey data showed that “Consumer confidence remained in December at the same record favorable levels as it has throughout the year”. Consumers shrugged off “falling stock prices” and focused on “job and income prospects”. However, the Conference Board Consumer Confidence data decreased, as “expectations regarding job prospects and business conditions weakened”. However, as far as anecdotal evidence is concerned, the consumer appears to be feeling flush. Preliminary data indicates that holiday spending in 2018 hit record levels. As chronicled in the LA Times, not only are the levels groundbreaking, but the preliminary data shows “holiday sales had seen the strongest growth in the last six years, surging 5.1%”. With Dallas Fed’s Special Questions showing businesses expect wages to increase 4% in 2019, the consumer may indeed have something to look forward to.