Stirred, Not Shaken: Consumers Take Stock Selloff in Stride

The University of Michigan Consumer Sentiment came in at 91.9 in August, a bit weaker than the initial estimate two weeks ago. This is the first read of sentiment in the wake of recent market volatility. 

First Read on Sentiment After the Selloff

On Thursday of last week, equity markets in the United States began a dramatic selloff which erased more than 10 percent of the value of the S&P 500 in the span of just four trading sessions. Roughly half of those losses have been recouped this week and, while markets remain volatile, the panic that characterized trading activity during the selloff seems to have abated. One of the top economic questions during this period has been the extent to which the volatility will impact the economy and whether or not it impacts the Federal Reserve’s decision to raise rates later this year.

Against that backdrop, this final reading for August consumer confidence takes on additional significance as it offers the first assessment of consumer sentiment in the wake of the recent volatility. The separately reported Conference Board measure of consumer confidence released earlier this week had a survey cutoff date of August 13, so it missed the recent volatility. Many of the survey responses for today’s release were also received prior to the stock market selloff, but according to the University of Michigan, the number of survey responses received since Wednesday of last week (before the selloff began) likely exceeds more than 20 percent of the total.

Resilient Sentiment

Today’s print of 91.9 for consumer sentiment is only slightly weaker than the 92.9 initial estimate released two weeks ago. Considering that resilience in sentiment, today’s release underpins our expectation that consumer spending will still be the key support to economic growth over the coming quarters. As we said earlier this week, the biggest potential risk to our outlook is the magnitude by which the current equity market volatility results in reduced consumer confidence.

Obviously, this report is not a “full capture” of post-selloff sentiment, but the relatively small adjustment augers well for how consumers are taking the news. Confidence will need to be monitored closely in coming months, but barring a significant deterioration in sentiment, we still expect consumer spending to grow at an annualized rate of about 3.0 percent in the second half of the year.

Consumers were feeling a little less confident about prospects for the economy, but were feeling pretty good about personal finances. Expectations of eventual Fed rate hikes are baked into consumer sentiment already. In August, 63 percent of consumers say they anticipate interest rates will increase in the coming year.

This is not the last look at Michigan sentiment for Federal Reserve policymakers. An initial estimate for next month will be released on September 11, less than a week before the FOMC meeting on September 17.