Sunday, May 27, 2012

Is the rise in US consumer confidence another sign of decoupling?

Friday we saw more evidence of a potential divergence between the US and the EU economic trends (see this post by Cullen Roche for more on the topic).
NYTimes: - Consumer sentiment rose to its highest level in more than four years in May as Americans stayed positive about the job market, while higher-income households were optimistic about wage increases, a survey released on Friday showed.

The survey, the Thomson Reuters/University of Michigan’s index on consumer sentiment, rose to 79.3 from 76.4 in April, topping forecasts for 77.8 and an initial May reading at the same level.

The reading, the final one for May, was the highest level since October 2007.
US vs. EU consumer confidence indicators

Unlike with the earlier signs of decoupling, the US equity markets remained skeptical and ended lower on the day. There are a couple of reasons for this:

1. The Eurozone problems are becoming so severe, it is now harder to see how the US could fully decouple.

2. The US consumer sentiment has been known to shift  rapidly.
NYTimes: - “Unfortunately, consumer confidence is still extremely vulnerable to a reversal, as occurred in the past two years,” the director of the survey, Richard T. Curtin, said in a statement.
Interestingly, the US consumer confidence indicator trend seems to have also diverged from the consumer sentiment in China. China's consumer survey results have been fairly volatile recently and more data will be needed to establish a trend. Given the impact of the US consumer on the economy and China's goal of increasing domestic spending, these relative trends will be tracked closely in the coming months.

US vs. China consumer confidence indicators






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