The Confidence Shock

My Chart o’ the Day comes from Bank of America Merrill Lynch’s US economics team, and their latest take on the strength of the US consumer. There was a “negative shock” in the confidence readings for the month of January that was the largest we’ve seen back to 2011. But BofA finds that it was mostly driven by the stock market’s abrupt sell-off in December, thus it ought to be mitigated by the huge comeback we’ve staged since the beginning of the year.

Here’s BofA’s look at the breakdown of where confidence comes from…

The rebound in the stock market is also likely to underpin confidence relative to the turn of the year. We test a variety of factors against our variable for the confidence shock and found that the S&P 500 is the biggest driver. This is followed by comparable contributions from the change in the unemployment rate and gasoline prices. The labor market has remained robust with a gangbusters jobs report in January while gasoline prices have remained supportive. If confidence does indeed pick up, it will mitigate the drag to 1Q

Josh here – Michelle Meyer et al note that Animal Spirits are alive and well and that this ought to be enough to power us through 2019 without the confidence plunge we experienced turning into something more systemic.

We maintain our view that the consumer will be an engine of growth this year, accounting for 70% of total growth this year, up from about 60% in 2018. The hope for the US and global economy rests on the shoulder of the US consumer – those shoulders seem pretty broad.

Source:

It’s a consumer’s world
Bank of America Merrill Lynch – February 1st, 2019