Experts on ‘mixed picture’ of consumer & economic trends

Experts at Comerica Bank, Cox Automotive and the University of Michigan all tried this week to decipher economic conditions and sentiments of consumers and policymakers.

The general conclusion?

“This week’s economic data shows a mixed picture,” Cox Automotive chief economist Jonathan Smoke wrote in his weekly column after recapping a variety of trends, including home sales, the labor market and durable goods orders.

“The labor market remains relatively stable, though not as strong as before the pandemic, with initial and continuing claims providing crucial insights. Consumer sentiment indicates cautious optimism tempered by concerns over rising inflation and interest rates,” Smoke continued.

According to the sentiment index from the University of Michigan, consumer sentiment declined by 10.5% in May compared to April. That movement arrived after surveys of consumers director Joanne Hsu pointed out that the reading had remained steady for the previous three months.

“This 8.1 index-point decrease is statistically significant and brings sentiment to its lowest reading in about five months. The year-ahead outlook for business conditions saw a particularly notable decline, while views about personal finances were little changed,” Hsu wrote in an analysis that accompanied the latest index reading.

“Consumers expressed particular concern over labor markets; they expect unemployment rates to rise and income growth to slow. The prospect of continued high interest rates also weighed down consumer views. These deteriorating expectations suggest that multiple factors pose downside risk for consumer spending,” Hsu continued. “Still, sentiment remains almost 20% above a year ago and about 40% above the all-time historic low in June 2022, reflecting how much consumer views have improved as inflation eased.”

Source: University of Michigan

Of course, inflation is one of the biggest factors influencing decisions made by the Federal Reserve regarding interest rates. Comerica Bank chief economist Bill Adams and senior economist Waran Bhahirethan dissected the meeting minutes from the last gathering of policymakers to project what they might do next.

The Federal Open Market Committee (FOMC) next meets on June 11-12.

“The minutes of the Fed’s May 1 interest rate decision show some of the rate setting committee’s members are more hawkish than their consensus statement, or than chair (Jerome) Powell’s guidance in the press conference after the meeting,” Adams and Bhahirethan wrote in their analysis. “Lamenting a ‘lack of further progress’ in recent months toward the 2% inflation objective, they were particularly concerned about ‘significant increases in components of both goods and services price inflation.’

“Concluding achieving their inflation objective ‘will take longer than previously thought,’ ‘various’ participants expressed willingness to tighten policy further, a very different emphasis than Powell’s statement at the May 1 presser that it is ‘unlikely the next policy move will be a hike,’” Adams and Bhahirethan continued.  “‘Almost all’ FOMC members supported the decision to begin slowing the pace of Fed’s balance sheet runoff. But ‘various’ participants emphasized that balance sheet decisions had no implications for the outlook of interest rate policy.

“Policymakers judged the economy was expanding at a ‘solid’ pace, but expected economic growth to moderate as the year progresses. Policymakers continue to judge demand and supply are coming into better balance in the labor market,” Adams and Bhahirethan went on to say.