9/27/2022: Consumer Confidence Up in September

Consumers' assessment of business conditions and labor market both improved

The Conference Board Consumer Confidence Index increased in September for the second consecutive month. The Index now stands at 108.0 (1985=100), up from 103.6 in August. The Present Situation Index—based on consumers' assessment of current business and labor market conditions—rose to 149.6 from 145.3 last month. The Expectations Index—based on consumers' short-term outlook for income, business, and labor market conditions—increased to 80.3 from 75.8. 

While stock markets are crashing, consumer confidence is going up. How does that make any sense? Well, most people don’t really pay attention to stock markets or international affairs. People care more about having a good paying job and living a good life. To be fair, this report probably covers mostly data collected from the first half of September before SPY crashed more than 10%. But my general point is that stock markets are not the economy. The US economy still looks very strong with full employment and energy prices have come down significantly from the early summer high.

People like Cathie Wood, Elon Musk and Jeremy Siegel are saying there is a deflation coming if the Fed keeps tightening. I am not sure I agree with them. First, they are super biased. Cathie Wood and Jeremy Siegel are equity fund managers who want to have low interest rates to keep equity prices inflated. Elon Musk is selling cars that a high interest rate on auto loans would dampen consumer demand. Their argument is that there’s a lot of unsold inventory and the strong US dollar will make the imported goods cheaper. But the US is a service based economy and the Core CPI was 0.6% from July to August. The hourly earnings  increased 0.3% from July to August. This tells us that there’s an upward pressure for wages. Wages are sticky and they don’t tend to go down. The consumer confidence report further confirms potential wage growth. Hence, I don’t believe there will be a deflation. What we should really worry about is the inflation caused by labor shortage and wage increases. I believe the Fed is doing the right thing of increasing the interest rate to stop the wage spiral. High inflation is not good for anyone.