Comment on Consumer Confidence & Chicago PMI
The Conference Board U.S. consumer confidence index leaped to an almost six-year high of 112.6 in July from an upward revised 105.3 in June (originally reported as 103.9). The median forecast for the July index was 105.0, so the result was much stronger than expected.
The expectations sub-index of the overall confidence index jumped to 94.8 in July from a revised 88.8 in June (originally 87.9).
The present situation sub-index soared to 139.2 in July from a revised 129.9 in June (originally 127.9).
According to the Conference Board, The rebound in Consumer Confidence has catapulted the Index to its highest reading in nearly six years (August 2001, 114.0). An improvement in business conditions and the job market has lifted consumers’ spirits in July. The Present Situation Index is also at a near six-year high (August 2001 144.5). Looking ahead, consumers are more upbeat about short-term economic prospects, mainly the result of a decline in the number of pessimists, not an increase in the number of optimists. This rebound in confidence suggests economic activity may gather a little momentum in the coming months.”
The proportion of those reporting jobs as plentiful jumped to 30.5% in July from a revised 27.6% in June (originally reported as 27.0%). Earlier results for this key measure were 29.1% in May, 29.0% in April, 30.3% in March, 27.8% in February, and 29.6% in January. The July result suggests that Fridays payroll gain for the month will be a solid one. The median forecast for nonfarm payrolls calls for about a 130K advance in July after the 132K rise reported for June. Todays news suggests that the increase could be even larger than that, and will observe Wednesdays ADP survey with much interest.
The Chicago Purchasing Manager Business Barometer fell to 53.4 in July from 60.2 in June. Earlier readings were 61.7 in May, 52.9 in April, 61.7 in March (a confusing reading at a time when other manufacturing indictors were soft due to the inventory adjustment), 47.9 in February and 48.8 in January.
The July index level was 5-points below the median forecast of a decline to 58.4 (which followed a June result that was almost 3-points above expectations at the time and a May result that was almost 8-points higher than anticipated).
Reports relating specifically to the manufacturing sector have recently pointed to an end to the inventory adjustment and consequent firmer activity. In general, we expect to see factory output growing at a moderate pace in the months ahead as production and demand move reasonably in synch. In this type of environment, readings for PMIs such as we saw for the Chicago index in May and June are too high. The July index, on the other hand, is a little lower than we think is sustainable, although this could well be a correction from earlier unsustainable responses. Market expectations for Wednesdays July ISM manufacturing composite index are for about a one-half point decline from the solid 56.0 reading posted in June. Our own estimate is for a larger drop to 54.5, for the same reason its was no surprise to see the Chicago index come well off its recent highs.