Tags: gundlach | recession | consumer | confidence | pessimism

Gundlach: Consumer Expectations 'Most Recessionary Signal' Yet

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Tuesday, 29 January 2019 04:39 PM

U.S. consumer confidence still looks relatively high even with recent declines, but billionaire investor Jeffrey Gundlach says the underlying data suggest a recession is coming.

Gundlach tweeted Tuesday after the Conference Board’s confidence survey for January showed the widest gap between current sentiment and expectations since March 2001, the first month of the U.S. recession that year.

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

Gundlach, chief investment officer of DoubleLine Capital, which oversaw about $121 billion as of Dec. 31, tracks confidence as a leading indicator of recession.

In a Jan. 8 webcast, he said consumer expectations were “flashing yellow” for recession.

Known as a contrarian, he was one of the few money managers to predict that Donald Trump would be elected president and that stocks would fall last year.

Meanwhile, U.S. consumer confidence slumped in January to the weakest level since July 2017 as optimism on the economy soured during the longest-ever U.S. government shutdown.

The confidence index fell to 120.2 from 126.6, the New York-based Conference Board said in a report Tuesday. That missed economist estimates in a Bloomberg survey calling for a drop to 124.

The measure gauging consumer expectations slumped to the lowest since October 2016 while Americans’ views on present conditions weakened for a second month.

Key Insights

  • Though confidence recently reached an 18-year high, the index has slipped amid the five-week government shutdown, continuing trade tensions with China, and major swings in U.S. stocks.
  • During the last major shutdown, in October 2013, confidence fell 7.8 points to 72.4.
  • The drop in the gauge tracked other sentiment indicators.
  • The University of Michigan’s preliminary January consumer sentiment index and the Bloomberg Consumer Comfort Index’s monthly expectations gauge both recently tumbled to two-year lows
  • On the bright side, the share of consumers planning to buy a home within six months jumped to 7.8 percent, a record in data back to 1967, as mortgage rates declined.
  • The share expecting business conditions to be worse in six months was the largest since November 2013, just after the last lengthy government shutdown.
  • The labor differential -- which measures the gap between respondents saying jobs are plentiful and those who say they’re hard to get -- held near the highest level in almost 18 years, a sign the labor market remains strong.
  • Buying plans showed mixed responses. The measure of consumers planning to purchase a car within six months held up, while the share expecting to purchase major appliances fell to an 18-month low.

What Our Economists Say...

The January decline in consumer confidence should be interpreted as more noise than signal due to the spike in political uncertainty stemming from the government shutdown. The elevated -- and relatively unchanged -- level in the present conditions index indicates that the economic expansion remains on solid footing. --  Tim Mahedy and  Carl Riccadonna, Bloomberg EconomicsRead more for the full  reaction note.

Official’s View

Shock events like government shutdowns “tend to have sharp, but temporary, impacts on consumer confidence,” Lynn Franco, senior director of economic indicators at the Conference Board, said in a statement. “It appears that this month’s decline is more the result of a temporary shock than a precursor to a significant slowdown in the coming months.”

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U.S. consumer confidence still looks relatively high even with recent declines, but billionaire investor Jeffrey Gundlach says the underlying data suggest a recession is coming.Gundlach tweeted Tuesday after the Conference Board's confidence survey for January showed the...
gundlach, recession, consumer, confidence, pessimism
Tuesday, 29 January 2019 04:39 PM
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