Consumer Sentiment is Down, But What Does That Really Mean?

Most Recessionary Signal Yet

The most recessionary signal at present is consumer future expectations relative to current conditions. It’s one of the worst readings ever.

— Jeffrey Gundlach (@TruthGundlach) January 29, 2019

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Rosenberg Agreement

Look at this chart: ratio of “present situation” to “expectations” from the Conference Board confidence report. Cut-and-dry sign of a tapped-out consumer. A great leading indicator at turning points because it either coincides with the recession or occurs a few months prior pic.twitter.com/qEf1a8ekVn

— David Rosenberg (@EconguyRosie) January 29, 2019

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The Expectations Index plunged from 97.7 in December to 87.3 In January. The Present Situation Index is at 169.6, a bit lower than the reading in December.

Consumer Expectations Under Fire

Main source of US strength is under fire.

Consumer expectations took a big hit in the last couple of months. Expectations are now below tax cut levels. pic.twitter.com/WqpVyZ6NSE

— The Long View (@HayekAndKeynes) January 29, 2019

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Factory Orders

New factory orders suggest that global trade activity will slow further #CapitalEconomics @SoberLook pic.twitter.com/QSWuFgaw38

— Liz Ann Sonders (@LizAnnSonders) January 29, 2019

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Two Out of Three Ain’t Good

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Charles Schawb’s Chief Investment Strategist, Liz Ann Sonders, says Two Out of Three Ain’t Good Leading Indicators Falter Again

​Every month, shortly after the LEI’s release, I put together a “dashboard” which includes the table below. It lists all 10 components that make up the LEI as well as their current level. More importantly, I also include the latest trend; which is often more telling than the level. It’s one of many visuals associated with my oft-expressed view that when it comes to the relationship between economic data and the stock market, “better or worse tends to matter more than good or bad.”​

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​Every end has a start

It’s customary for the LEI [leading] to begin to decline while the CEI [coincident] is still rising; which is the case presently. Every end of a cycle has a start. It’s possible that the start of this cycle’s end began with the September peak in the LEI. It may be too soon to declare it probable, but not too soon to declare it possible.

What does that really say? Do these indicators tell us anything we don’t already know?

What We Know

1. We just went through the longest government shutdown in history. 800,000 people missed two paychecks but will be repaid. Contractors will not be paid.
2. Apple warned. Moreover, Apple Lost a Record $463 Billion in Market Cap in Three Months.
3. NVDIA and CAT Hammered on Warnings, Soft Demand in China
4. A phone maker, as chip maker, and an industrial equipment maker all blamed a slowdown in China.
5. Brexit negotiations are in shambles and the clock is winding down. In Brexit Backstop Madness, a UK Renegotiation Amendment Passes while the EU Response was “No Renegotiation”.
6. People on both sides of the aisle are upset over the wall.
7. Trump’s on again off again negotiation strategy has rattled the markets.
8. The last few housing reports have been terrible. The most two recent new home sales reports were delayed.
9. Soft indicators such as regional Fed reports have weakened.
10. Portions of the yield curve have been inverted for well over a month. I have been writing about this since December 2.

Leading or Coincident Indicators?

In essence, these alleged “leading indicators” tell us little more than we already know simply by looking at the data.

We do not know what happens from here.

Watch the Curve

Gundlach cites leading indicators. I think number 10, yield curve inversion is the most significant.

If the curve suddenly steepens, with the front end of the curve tumbling, recession will be at hand.

Mike “Mish” Shedlock