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Consumer Confidence Falls for Fourth Month, Remains Historically High

Karl Schamotta November 26, 2019

American consumer confidence weakened for a fourth consecutive month in November – but remained high enough to support expectations for a strong holiday spending season. According to numbers released this morning, the Conference Board’s Consumer Confidence Index fell to 125.5 last month, down from 126.1 in October – with a “softening in consumers’ assessment of current business and employment conditions” driving the drop.

The “Present Situation Index” – an appraisal of current conditions – decreased from 173.5 to 166.9 in the month, but the “Expectations Index” – an outlook for the future – increased from 94.5 to 97.9. This suggests that consumers expect growth to improve slightly into the early part of 2020 – and that holiday spending patterns are unlikely to experience a material downshift.

Separately, data released by the Census Bureau earlier this morning showed that the trade deficit shrank while retail and wholesale inventories rose slightly more than expected in October – factors that will act to lift fourth quarter growth expectations, while also supporting

Exports fell to $135.3 billion in October, $0.9 billion less than in September, while imports dropped more steeply, to $201.8 billion, down $5 billion from the month prior. This narrowing in the negative balance of trade should mathematically reduce the drag embedded in the next series of gross domestic product calculations, but ultimately reflects a drop in demand – which could be indicative of broader weakness.

Inventories told a similar story, with retail up 0.3% while wholesale rose 0.2% in the month. This may illustrate growing confidence in future demand, or stockpiling ahead of the latest round of tariffs.

More broadly, hopes for a US-China trade deal continue to bolster risk appetite in the financial markets, with each positive news release gradually pushing equities and other asset prices higher. Last night, the Chinese Ministry of Commerce issued a statement saying that several teleconference calls had been held, and that consensus on a phase-one deal was growing – triggering a small rise in global equity indices and a modest recovery in risk-sensitive currencies like the Canadian dollar. Implied volatility in a number of markets continued to decline.

This sets up the potential for a “buy the rumour / sell the fact” dynamic around an eventual announcement.

Karl Schamotta
Chief Market Strategist
@vsualst

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