September 17, 2021

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The preliminary estimate of consumer sentiment for September rose 0.7 point to 71.0 after having plunged to 11.5 points in August.  Thus, sentiment remains below the lowest level for the pandemic which was 71.8 in April of last year.  But such a decline seems totally out of sync with what is happening in the economy.

Surveys of Consumers Chief Economist Richard Curtin said, “Consumers expected the least favorable economic prospects in more than a decade. The decline in assessments of buying conditions for homes, vehicles, and household durables left all three near all-time record lows (see the chart), with the declines due to spontaneous references to high prices. Some observers anticipated that the early August plunge in confidence would quickly disappear since it was driven by emotions. Emotions have long been known to speed responses, the so-called fight or flight response, which was the adaptive function they performed in early August. Many other sources of economic data have since shifted in the same direction, and point toward slower growth in consumer expenditures and purchases of housing to the end of 2021.”

We respectfully disagree.  We expect sentiment to  rebound in the months ahead as consumers’ worst fears are not realized.  The pace of economic activity may get dinged, but it is not going to plunge.  The number of cases of the Delta variant has risen, but seems to be easing in recent weeks.   As the same time economic growth is continuing to climb at a respectable pace as consumers continue to spend vigorously — a fact that was not known at the time the survey was taken.  Furthermore, it appears that job gains will rebound sharply in September as layoffs and a drop in the number of people receiving unemployment benefits point towards an increase in payroll employment of 700 thousand or so in that month..  With the savings rate at 9.6% the consumer is flush with available cash to spend.  In the housing sector demand far exceeds supply.  Ditto for the manufacturing sector where manufacturers are being forced to dip into inventories in an attempt to satisfy demand.  They need to significantly boost the pace of production.

We expect 8.0% GDP growth in Q3, 10.5% in Q4. We are also looking for 7.8% GDP growth in 2021 and 5.1% growth in 2022.

Consumer expectations for six months from now rose from 65.1 to 67.1.

Consumers’ assessment of current conditions  fell from 78.5 to 77.1.

Stephen Slifer

NumberNomics

Charleston, SC