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What, Me Worry?

06/30/2016

The increase in consumer confidence during May surprised me.  It rose a healthy 5.1 points to 118.3, the highest since last September.  The consumers were polled following the lousy jobs report earlier this month, leading me to expect a lousy report on consumer confidence, as is normal.  (Of course, the polling took place prior to the Brexit vote, which badly frightened stock markets worldwide.)  Subsequently, the personal income report showed a 2.4% annualized increase in both income and personal consumption expenditures.  No wonder their confidence soared!

This was a good sign, as the consumer has not bounced back from the 2008/9 financial crisis as well as the economy has bounced back.  The recovery has not been widely distributed.  Maybe, that could be changing, I hope.

Further, the Fed’s preferred inflation indicator, the PCE Deflator, held at 2.4%, which reassures the Fed that deflation is not sneaking back.  (Remember, it is easier to defeat inflation than deflation.)  This theoretically makes it easier to raise interests rates, which is still a very low probability in this environment.

The open question is whether the Brexit vote will damage consumer confidence in America.  I doubt it, because Brexit was just a temporary tremor to “Joe Sixpack,” who doesn’t see the long-term threat. And, that’s okay!  Be confident and SPEND!

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