We were wrong: several minutes ago when we documented the collapse in the Gallup Economic confidence, we said that "we look forward to the UMich confidence report to beat expectations when it is released in just a few minutes." Moments ago the official print came out and it was not pretty: sliding from 91 to 89.7, not only did the print miss expectations of a rebound to 92.0, but was the lowest print since September 2015, as well as the fourth consecutive drop.
The reason for the drop? Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation.
And as UMich calculates, "the data now indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016." Hardly a glowing endorsement of the 2.7% quarterly GDP growth needed to hit the Fed's optimistic forecast.
This is what the report said:
Consumer confidence continued its slow overall decline in early April, marking the fourth consecutive monthly decline. To be sure, the sizes of the recent losses have been quite small, with the Sentiment Index falling just 2.9 Index-points since December 2015, although it was down 6.2 Index-points from a year ago and 8.4 points below the peak in January 2015. None of these declines indicate an impending recession, although concerns have risen about the resilience of consumers in the months ahead.
Consumers reported a slowdown in expected wage gains, weakening inflation-adjusted income expectations, and growing concerns that slowing economic growth would reduce the pace of job creation. These apprehensions should ease as the economy rebounds from its dismal start in the first quarter of 2016. Overall, the data now indicate that inflation-adjusted personal consumption expenditures will grow by 2.5% in 2016.
Add to this the concern about rising gas prices that was voiced by Gallup and suddenly you have a very troubling picture of the US economy.
But perhaps most troubling for the Fed is that while 1 year inflation expectations remained unchanged at 2.7%, the 5 year forward forecast dropped from 2.7% to 2.5%, implying that whatever the Fed is doing to boost expectations of rising prices is not working.