US: Unless confidence is restored, consumer spending in H2 is poised to slow - Wells Fargo

Data released today showed a significant decline in consumer confidence in June. Analysts at Wells Fargo point out that even with this deterioration, confidence is still elevated by historical standards and noted the fallout in June is likely attributable to concern about the trade war and an indication of vulnerability in the labor market.

Key Quotes: 

“Consumer confidence was shaken in June falling almost 10 points to 121.5. The consumer is still on track for a solid outturn in Q2 but unless confidence is restored, consumer spending in the second half is poised to slow.”

“Some retrenchment was expected, but today’s consumer confidence report instead showed that amidst an ongoing trade war and a soft May jobs report, consumers were downright shaken. The 9.8 point drop is the largest monthly decline since 2015. From the initially reported print of  134.1, the decline was 12.6 points, the biggest monthly drop since 2011.”

“The threats about a new front in the trade war with Mexico consumed the news cycle in the first week of June. Although that already feels like history, the second half of the month included more geo-political worries with the downing of a U.S. drone in Iran and fresh sanctions against the Iranians in response. So to the extent that consumers are worried about an unsteady global growth landscape, there are no signs of that abating at present.”

“It would be too soon to mark-down spending estimates for the second half; but if past patterns hold, without a turnaround in this series, job growth could slow in coming months.”

“We are forecasting a 2.9% rate of growth in personal consumption expenditures in the second quarter. Today’s report of wilting confidence in June does not change that. Retail sales have already been released for April and May (two out of the three months for the second quarter) and suggest that barring an awful month for stores in June, spending is already on solid footing for the period.”

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