Last week’s preliminary report on consumer confidence from the University of Michigan revealed that sentiment in August collapsed from 81.2 to 70.2—the lowest since 2011. This was a large negative surprise for the market, and the main catalyst for the sharp rally in 10-year T-note yields. The report was capturing the shift in consumers’ views with regard to 1) the impact from COVID-19 and specifically the resurgence in the Delta variant and 2) the ending of the extended emergency unemployment benefits, which have now ceased in 25 states. Such a sentiment shift was also captured in an earlier proprietary research report on consumer sentiment published by William Blair’s consumer equity research team, which showed the largest sequential increase in its Worry Index (chart 1) since the survey began. These changes do not seem to have had much of a negative impact on the stock market, and the S&P 500 continues to hit new highs. It was also encouraging to hear the bottom-up optimistic outlooks from companies such as Walmart and Target, which are both in touch with lower-income consumers.
In this Economics Weekly we take a look at the consumer, what’s happened with regard to the wealth inequality gap, and why some of the more recent economic data actually sheds a ray of hope that solid progress is being made in addressing this issue.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.