US recession: With consumers showing fatigue, what is left to hold up the economy?

  • A consumer sentiment survey is showing signs of weakness.
  • Consumption has held up the economy up while investment dragged it down.
  • The chances of a recession are rising and that may weigh on the dollar.

The University of Michigan's final Consumer Sentiment Index for August has been surprisingly downgraded from 92.1 to 89.8 points. The initial publication was already significantly below expectations and the current figure is the lowest since October 2016 – nearly three years.

The updated Gross Domestic report for the second quarter has shown a healthy growth rate of 2% annualized. However, there was a considerable gap between consumer spending at 4.7% – and contraction in investment – both in business and household spending. 

Consumer sentiment down August 2019

We noted that this has implications for the medium term – that the Fed is targeting – and there impacts the US dollar.

Strong consumption played a role in the second quarter that ended in June. The shopping spree extended into July with upbeat consumer sentiment – and upbeat retail sales.

The picture for August is already murkier. While lower consumer confidence may not immediately translate into reduced spending in August – it as an ominous sign.

If consumption fizzles out, what is left to prevent a recession?

A recession – foreseen also by the inversion of the yield curve – make time to materialize. However, the prospects for 2020 are looking bleaker by the day. 

If such downbeat data continue to pile, talk about a recession may grow – turning into a self-fulfilling prophecy and adding fuel to the fire.

A recession and the dollar

The greenback is set for gains first and foremost against the Australian dollar – suffering from the trade wars. Next in line is the pound – which struggles with Brexit uncertainty. The robust Canadian economy may give a temporary fight against the dollar.

The euro may be a winner against the American currency – despite an imminent German recession – as the euro may see some repatriation after the immense QE programs. The clearest winner is the Japanese yen – the safest of safe havens.

For more about the trade wars and currency implications, see Powell powerless against Trump's trade wars – US set to move

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

Latest Forex Analysis

Editors’ Picks

GBP/USD extends gains toward 1.31 after upbeat UK wage figures

GBP/USD is extending its gains and advancing toward 1.31 after UK wage figures beat expectations with 3.2% annually. The unemployment rate remained at 3.8% in November. 


EUR/USD recaptures 1.11 amid upbeat German figures, USD weakness

EUR/USD is trading above 1.11 after the German ZEW Economic Sentiment beat with 26.7 points. Presidents Trump and Macron agreed not to slap tariffs on each others' countries. The US dollar is retreating.


Market delays the trip to the moon

The crypto markets continue to turn to a new bullish phase. This turnaround began at the beginning of the year after a consolidation phase that started in mid-2019. 

Read more

Gold retreats from 2-week tops, drifts into negative territory

Gold failed to capitalize on its early uptick to near two-week tops and dropped to fresh session lows, around the $1560 region in the last hour.

Gold News

USD/JPY: Weaker near 110.00 amid China virus fears, BOJ's status-quo

The Japanese yen retains the bid tone following the Bank of Japan's (BOJ) status-quo, keeping USD/JPY under pressure near the 110 level amid risk-off market profile. S&P 500 futures drop 0.40% while the US Treasury yields are down over 1.50%, as the sentiment is hit by the coronavirus outbreak. 


Forex Majors