Confused about the U.S. economy? Here is why you might be. Both U.S. consumers and businesses are simultaneously signaling up and down. Some important economic indicators are pointing in opposite directions, even when measured among what presumably seems to be the same set of people.

Consumers are negative according to the Conference Board, but positive according to the University of Michigan survey. According to the Conference Board, consumer confidence declined in November to its lowest reading in over a year (since September 2014), mainly because of cautious job market views. On the other hand, the University of Michigan’s November Consumer Sentiment Index (CSI) increased for the second month in a row. The average CSI over the last 12 months is higher than at any point in the last eight years. Thus, consumers paradoxically have strong sentiment, but declining confidence. We will have to watch and measure actual consumer spending to find out how they really feel. Unfortunately, although personal income is up, real consumer spending has slowed over the last three months, with the difference going into savings. Maybe consumers are saving for seasonal pre-Thanksgiving through New Year’s shopping bargains?

Businesses are negative according to regional Purchasing Managers’ Indices (PMIs), but positive based on durable goods orders and shipments. November regional PMI surveys – of the people doing the purchasing for businesses – show contraction for the fourth month in a row. However, the latest U.S. Census Bureau’s Durable Goods Manufacturers’ Shipments, Inventories and Orders report, which ostensibly measures what the PMI respondents actually do, has been positive four months in a row. Thus, purchasing managers are expressing caution as they puzzlingly increase durable goods orders. Granted, data can be significantly revised months down the road, but something is amiss. Businesses have multiple reasons for expressing restraint, including rising wages, sluggish growth, an expected Fed rate increase, and a strong dollar; maybe businesses are expressing extreme caution while still moving forward with their own plans and possibly taking advantage of low commodity prices.

Actions taken now are more crucial for the staying power of a business than for a consumer. Although an unenthusiastic consumer is not stimulative for the economy, in this low inflation world, the consumer is not losing economic ground by saving. However, the reluctant business is making a strategic decision versus the expanding business that may mean the difference between profits and failure twelve months down the road. Unless the Federal government steps in with increased fiscal expenditure, the U.S., economy will remain in a tug of war between consumer and business spenders and non-spenders.

Michael Ashley Schulman, CFA
Managing Director
Hollencrest Capital Management

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