U.S. consumers and the executives that Goldman Sachs (GS) CEO David Solomon talks to have a lot in common — they feel good about today and worse about tomorrow.
New data out from The Conference Board on Tuesday showed consumer confidence dipped in February, with the decline entirely driven by expectations.
The Conference Board's index fell to 102.9 in February from 106 in January and 109 in December; December's reading was the highest since Sept. 2021.
Underneath the surface of this decline, however, was another month where a strong labor market lifted consumers' current expectations while fears about the future loomed.
"The present situation index rose for a third straight month, underpinned by upbeat views on employment and business conditions," wrote Gurleen Chadha, U.S. economist at Oxford Economics, in a note to clients on Tuesday. "That index rose 1.7pts to 152.8. The differential between jobs 'plentiful' and jobs 'hard to get' rose to 41.5ppts, the highest since April 2022, indicating that current labor market conditions are still quite tight."
In January, the U.S. economy added a surprising 517,000 jobs while the unemployment rate stood at 3.4%.
Meanwhile, speaking at Goldman's second-ever investor day on Tuesday, Solomon said the executives he spends his days speaking with are feeling better about a "soft landing" for the economy, but that inflation worries are "hampering confidence."
"When I talk to CEOs, they feel more uncertain about the course of inflation as we run through 2023, 2024. ...There's a real belief that inflation will be stickier and harder to moderate than markets now predict," Solomon said.
The Conference Board's data shows consumers remain pleasantly surprised the soft labor market they'd braced for hasn't materialized just as executives fretting over recession remain similarly relieved.
And yet both groups in their own way remain braced for some version of economic impact. It's just not clear that hasn't already happened.
We're coming off a year in which the S&P 500 fell 19%, the price of gas in the U.S. hit $5 a gallon, and the inflation rate reached 9.1%. In less than a year, the Fed has raised interest rates 4.5%. The housing market got crushed. And the most popular investing strategy for those saving for retirement endured its worst year on record.
All things that have improved in 2023.
And if there's one theme that been pervasive in markets and the economy for some time now it's a sense from investors and consumers that the worst is yet to come.
Economists at Wells Fargo said in a note consumer confidence data "pours some cold water on the streak of strong economic data received to start the year."
Chris Rupkey, chief economist at FWDBONDS, said Tuesday, "if consumers drive the economy, the outlook for 2023 is bleak as the consumers expect that the worst is yet to come."
On Tuesday, The Conference Board's Expectations Index stood at 69.7, notable as any reading below 80 is typically consistent with recession, according to the report. This index, however, has been below 80 for 11 of the last 12 months. And we wait for the recession still.
Solomon said there is typically a "4 to 6 quarter lag before people reset their expectations."
The question, then, is in which direction do consumers and businesses need to reset expectations against those held today. And, once they do, will it already be too late?
What to Watch Today
Economy
- MBA Mortgage Applications, week ended Feb. 24 (-13.3% during prior week)
- S&P Global U.S. Manufacturing PMI, February Final (47.8 prior)
- Construction Spending, month-over-month, January (0.4% expected, -0.4% during prior month)
- ISM Manufacturing, February (47.9 expected, 47.4 during prior month)
- ISM Prices Paid, February (44.5 during prior month)
- ISM Employment, February (50.6 during prior month)
- ISM New Orders, February (42.5 during prior month)
- Wards Total Vehicle Sales, February (15.00 million, 15.74 million during prior month)
Earnings
- Abercrombie & Fitch (ANF), Dollar Tree (DLTR), Jack In The Box (JACK), Kohl's (KSS), Lowe's (LOW), Nio (NIO), Okta (OKTA), Royal Bank of Canada (RY), Salesforce (CRM), Snowflake (SNOW), Tupperware (TUP), Wendy's (WEN)
