Tags: consumer | market | confidence | investing

Consumer Confidence Grows With Strengthening Job Market

Monday, 15 August 2016 09:58 AM Current | Bio | Archive

Markets showed their disappointment when retail sales in July came in below expectations at virtually unchanged from June 2016, but nevertheless up by a meager 1.9 percent year-on-year.

Please take care, that was not the whole picture and it was interesting to see that sales of the non-store retailers were up by about 14.1 percent on a yearly basis and now are growing at an impressive much faster pace than the total retail sales. Also health and personal care stores sales increased by about 7.8 percent on a yearly basis.

Simultaneously we got the University of Michigan's Consumer Survey that came in practically unchanged at 90.4, up by 4 tenths compared to July with, and that is important, expectations coming in higher at 80.3, which was up by 3.5 points, but current conditions were down 2.9 points to 106.1.

In clear language, this means rising expectations reflects confidence in the jobs outlook remains good while declining current conditions points at slowing consumer spending for a second month in a row.

Inflation readings were 2 tenths lower with the 1-year inflation outlook now at 2.5 percent (declining gasoline prices) while the five-year expectations remained stable at 2.6 percent.
Never forget that employment conditions and inflation are the two main components of the consumer sentiment index.

This week on Wednesday we’ll get the FOMC minutes that could (hopefully) give us some more clarity at what the Fed’s decision makers are really thinking where the U.S. economy and inflation are headed for over the short to median term.

Besides that, we’ll also get some inflation numbers this week for the U.S. and the EU.
Besides all that the big negative news today came, once again, out of Japan (the world’s third economy!) where GDP growth in Q2 came in at unchanged (zero) after growing 2.0 percent during Q1 while growth on a yearly basis only increased 0.2 percent.

Looking at the details we also see that private consumption only increased only by 0.1 percent in Q2 after rising 0.7 in Q1 whilst capital expenditures declined 0.4 percent in Q2 after declining 0.7 percent in Q1.

In simple words, the Japanese economy is practically at a standstill notwithstanding all the monetary policy measures that go from quantitative easing to negative interest rates.It simply doesn't work.

I don’t think it’s an overstatement to say that as well as the Japanese government as, for example, the IMF are getting desperate as the latter just has proposed that Japan's government could implement a law stipulating minimum wage increases in the country. If that could work, only time can tell, but I have my doubts.

When we look at China, which is the world’s second economy, we also saw in July their 3 main activity measures all missing consensus forecasts with industrial production slowing to 6 percent on a yearly basis (y/y); fixed asset investments declining to 8.1 percent y/y while consumer spending eased to 10.2 percent y/y.

While, at least in my opinion, the U.S. remains by far the best place in a bad neighborhood, I think investors could do well taking notice of the fact that what’s called at the Fed's “Securities Held in Custody for Foreign Official and International Accounts: Marketable U.S. Treasury Securities” declined 5.2 percent or $156.8 billion since August of last year.

Most investors don't or won’t pay attention to this, but it could be a warning light, which shouldn't better be taken lightly that shows stable official owners of U.S. Treasuries are not expanding their holdings but on the contrary are scaling down their holdings of U.S. Treasurys, albeit not massively, which also shouldn’t be expected from them, at a time that Treasurys’ overall prices have gone up and that has resulted in lower yields.

A good, but at the same time an unanswered question is if this fact should be looked at as an early sign, which only time will be able to tell, of the beginning of a trend reversal for bond prices and consequently also for equity prices.

Common sense tells us that prices of bonds, government as well as private, and equities are all overpriced at present.

Of course, common sense in today's markets is a rather rare commodity.


Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments. To read more of his articles, GO HERE NOW.


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Markets showed their disappointment when retail sales in July came in below expectations at virtually unchanged from June 2016, but nevertheless up by a meager 1.9 percent year-on-year.
consumer, market, confidence, investing
Monday, 15 August 2016 09:58 AM
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