Consumer Confidence Dips; Questions Abound on Q3 Consumer Activity

Talking Points:

Consumer Confidence fell to lowest reading of 2016 in today’s University of Michigan reading.

– Long-term inflation expectations fell, increasing pressure on Federal Reserve officials.

The weakened slightly on an overall limited market reaction.

On the heels of a strong Advance Retail Sales reading this morning, the University of Michigan Consumer Confidence survey showed a weak read of 87.9 versus the 92 expectation and 91.2 previous print; producing the weakest reading since September 2015. A strong consumer is vital to a strong US economy. Consumption is approximately 70% of US Gross Domestic Product and has been the primary driver of US GDP this year. While the headline GDP reading for Q2 was only 1.4%, Personal Consumption Expenditures grew 4.3%. Consumption kept GDP above water, which was being dragged down by negative growth in government spending and private investment.

One of the things the Fed has been highlighting in the past few months has been falling survey-based inflation expectations. Market-based inflation expectations have been low for years now but survey-based held steady until earlier this year. According to the University of Michigan survey, long-term expectations fell again to 2.4% from 2.6%, while short term expectations remained steady at 2.4%.

Chart 1: 1-minute Chart: October 14, 2016 Intraday

While the USD had a very limited reaction to the release of this data, look to 1:30pm EDT today for Chair Yellen to speak at the Boston Fed Conference.

— Written by Omar Habib

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