Consumer Sentiment Reports & Philly Fed Both Weak

Consumer Sentiment and Spending

Consumer Sentiment – As online shopping gets close to the double digits as a percentage of overall retail sales, the fate of online shopping becomes the fate of the overall market. Since online shopping is growing faster than physical stores, its importance to growth is larger than its share.

On a seasonally adjusted annual run rate, e-commerce sales were up 3.9% in Q2 which is the same as the original growth rate reported in Q1, but 0.3% better than the revised Q1 number. Online sales in Q2 were 9.6% of total sales which is an increase of 0.2%.

The preliminary University of Michigan consumer sentiment report missed estimates. It came in at 95.3 which missed the consensus and the prior report which were both 97.9. It was below the lowest estimate which was 96.

This was the weakest report since September. It is starting to show signs of why the ECRI index is so weak. It’s discouraging to see consumers becoming less optimistic when the stock market is near its record high and the labor market still is strong.

There was no change in the expectations index which was at 87.3. The current conditions index fell about 7 points to 107.8. Much has been made about the relative strength in the current index versus the future index as this differential was similar prior to the last recession.

Consumer Sentiment – The worst case scenario is for the current index to fall just like it did during the last recession.

This weakness in the current index is a bad sign for August consumer spending, but I wouldn’t start worrying about a recession yet. I would be worried about a pullback in stocks since they are near their all-time high. The 1-year outlook for inflation was flat at 2.9% and the 5-year expected inflation was up 0.1% to 2.5%.

The weakness in this report was the catalyzed by the bottom third of the income distribution. This makes sense because the top 50% of people own stocks, so they are feeling good as stocks are near their records.