Sentiment surveys are used to gauge consumers and businesses views on how the economy is doing. The Leading Economic Indicators for the US includes consumer sentiment as one of the ten components. The idea here is that sentiment could give us a clue about where the economy is going. Sentiment surveys from different sources tend to be closely correlated.
Michigan Consumer Sentiment Survey
In July, consumer sentiment dipped below 90 to 89.8. However, the September reading bounced back a bit to 92. Based on history, a reading below 90 is a concern. The series is volatile and for this reason, looking at a moving average can be helpful.
source: tradingeconomics.com
NFIB Small Business Optimism Survey
There are 30 million small businesses in the United States. They employ almost half of all employees in the US. This survey has collected data since the mid 70’s and includes detailed questions about outlook on sales, inflation, hiring and capital spending. This type of data gives quite a bit more insight as to whether concerns about the economy are actually impacting business spending. If business spending goes down, that would of course hurt the economy.
The August reading for the survey is interesting in a number of regards. First, businesses remain optimistic with a reading of 103.1. This reading is in the top 15% of all historical readings. That said the score did fall 1.6 points from the prior month.
source: tradingeconomics.com
12% of the businesses said they expected the economy to improve. This is down 8% from the prior survey. 17% of the businesses expect real sales to be higher. This is a decline of 5%. So clearly the future outlook isn’t as positive. However, the companies have had little change in their outlook for plans to make capital outlays (28%), see now as a good time to expand (26%) and finally increase employment (20%).
So, consumers and small businesses are less optimistic but still have a positive reading and plan for spending.
United States Manufacturing PMI
Manufacturing in the US has slowed from the beginning of the year. In August, the PMI reading was 50.3. A reading of 50 is zero growth. This week, IHS Markit released the flash PMI for September with a reading of 51.0. Orders, sales and employment rebounded a bit, however exports continue to weaken.
source: tradingeconomics.com
The Atlanta Federal Reserve GDP Now forecast for Q3 from Sept 18th was 1.8%. It is interesting to note from their discussion that the data reflects a rebound in industrial production, consumer spending and real private fixed investment growth. Exports are noted as a soft spot.
Outlook
The Fed cut rates for a second time last week. The US bond market anticipates two more rate cuts this year. The sentiment indicators are cautionary while initial jobless claims and total employment still look good. Valuations based on current interest rates are reasonable. The focus in the next few months will continue to be on the manufacturing sector and jobs overall.