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Economic Insights

With U.S.-China trade tensions escalating, U.S. purchasing managers have turned less optimistic than their eurozone counterparts. Meanwhile, U.S. consumer comfort levels remain elevated. 

Talk about a role reversal: The May flash purchasing managers’ index (PMI) for the manufacturing sector in the United States, released on May 23, 2019, was actually weaker than a similar report for the eurozone. That’s a little shocking, given the widely reported economic malaise in many European nations in recent months. The May PMI data stoked fears of a potential economic slowdown in the United States as the decade-long U.S. expansion traverses its 119th month (one shy of the all-time longevity record).

 

U.S. Purchasing Managers Have Turned Less Optimistic than European Peers
Flash IHS Markit manufacturing purchasing manager indexes (monthly) for the United States and the euro area (eurozone), June 2016–May 2019

Source: IHS Markit. Data as of May 23, 2019.

 

Thus, sentiment is increasingly negative in the U.S. as an ongoing inventory correction depresses production in the near term and trade war worries engender fears that demand will weaken.

Consumers don’t seem to have received the same gloomy message as the companies surveyed in the PMI reports. The weekly Bloomberg consumer comfort index has remained at a level very close to recent highs through the third week in May.

 

U.S. Consumer Comfort Remains Elevated despite Trade Tensions
Data for the period Oct. 19, 2003–May 19, 2019

Source: Bloomberg. Data as of May 23, 2019. Consumer Comfort=Bloomberg Consumer Comfort Index. State of the National Economy=Bloomberg U.S. National Economy Expectations Diffusion Index.

 

This index is highly correlated with all other surveys of consumer confidence and thus it appears that trade war concerns and other potential pitfalls for the global economy have not filtered down to the micro level, where more prosaic concerns are the drivers of sentiment.

For now, the U.S. consumer appears to be shrugging off the increasingly grim headlines around the U.S.-China trade conflict.  That’s especially important, as the consumer sector accounts for nearly 70% of U.S. gross domestic product, according to the U.S. Bureau of Economic Analysis.  Should the tensions escalate further—and begin to have a pronounced effect on U.S. growth and inflation—consumer data for June and beyond may signal a summer of growing discontent.

 

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