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US Consumers Confident, But Troubled By Trade

Andre Lapaine July 27, 2018

The University of Michigan July consumer sentiment report came in this morning, falling slightly from June’s level of 98.2.  July posted a value of 97.9, beating market expectations of 97.1. That expected 97.1 level was also last July’s print, so consumers this year seems to be slightly more optimistic than last.

Following the recent strong economic data coming out of the US, specifically today’s report for Q2 2018 GDP coming in strong at 4.1%, it may seem a bit surprising that the consumer report saw a decline from what was reported in June.

The small decline is most likely a result of economic uncertainties that have been worrying many consumers in the past few months.  Most notably, the uncertainty of future trade tariffs is keeping optimism in check after becoming a common theme in the past few months.

Trade policy uncertainty has become more prevalent as discussions continue between the US and its major trading partners, as the report states that out of households that were surveyed 35% spontaneously mentioned that the tariffs would have a negative economic impact in July, up from 21% in June and 15% in May.  The longer these disputes go on, the more uncertainty is likely to grow among American consumers.

As expectations for near-term interest rate hikes continue to strengthen due to the relative health of the economy in 2018, many remain quite bullish as job and income growth has remained strong throughout the year. It seems as though this trend should continue in the second half of 2018, so we expect consumer confidence to remain relatively high.

Bottom Line: Should we see any resolution among the US and its major trading partners in terms of tariffs, we could see most of the negative uncertainty dissipate which, and that would likely lead to a positive jump in consumer confidence in the coming months.

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