Today brought more mixed results from the U.S. economy.
On the one hand, home prices in 20 U.S. metropolitan areas advanced for the first time since 2010, signaling a rebound in the housing market. On the other hand, U.S. consumers are still on the fence about how they feel about the larger economy.
The major indices reacted by this volley of economic reports by opening down, then shooting up, then settling back around levels seen at Friday’ close. It appears that investors are struggling with these mixed signals, but there’s no reason why we should get caught up in this confusion. In today’s blog post I’d like to clear some things up about the American consumer.
The big news today was that the Conference Board’s index of consumer confidence dropped 7.9% to 60.6—this is the largest drop since October, and the index now is at the lowest level since last November. The drop was especially harsh because economists expected confidence to advance to 66.5.
As you can well imagine, there was plenty of negativity today about the state of the American consumer. But the past few years have shown that consumer confidence tends to dip in the summer anyways, so I’m more focused on the long-term picture rather than this one data point.
For example, this reading is still a 34% improvement over last Augusts’ reading. I’m sure you remember that last summer brought a lot of volatility for investors, but both consumer confidence and Wall Street have improved by leaps and bounds since then. You’ll also see that while we’re not quite at the high reached last January, the Conference Board’s consumer confidence index has remained above 60 for the past several months.
We’ll receive more consumer confidence data on Friday, this time from the University of Michigan’s consumer sentiment index. More importantly, we’ll see whether consumers’ trepidation about the economy matches the real picture when the Commerce Department releases its second estimate for second-quarter Gross Domestic Product tomorrow, August 29.
When it comes to the U.S. economy, it pays to look at the big picture and the long-term rather than fretting over seasonality and blips in the data. I’ll be back in touch tomorrow with the latest on U.S. GDP.