In years past, we’ve pointed out how some market downturns where disproportionately intense relative to the fundamental weakening of economic results. In other words, consumers and investors can overreact to bad news. In 2019, the story seems to have reversed. We’re a little concerned that the everyday consumer isn’t recognizing the potential damage in store from the trade dispute in China, the growing likelihood of a hard-Brexit, and an overall slowdown in global growth.
The US Consumer Board’s Consumer Confidence index jumped from April’s (already very solid) reading of 129.2 to the truly impressive reading of 134.1 in May. Senior Director, Lynn Franco, notes that consumer confidence measures are “hovering near 18-year highs”. In their estimation, consumers expect the economy to continue growing without any pullback in spending for the near future.
To be sure – once consumers lose confidence, they spend less and the recessionary tendency is compounded. In other words, high confidence is itself a self-fulfilling prophecy – an actual bulwark against a bad economic outcome. On the other hand, economic factors tend to move slowly while consumer moods can turn rapidly. If we ever leave our goldilocks scenario of low interest rates, full employment, and robust global growth, how much resilience should we expect from newly rattled consumers who learn too late to appreciate genuine threats to prosperity?