While a number of economic indicators have seen tremendous rebounds off their COVID lows, one that sticks out as a major outlier has been Consumer Confidence; that remained the case in January as well.  In this month’s report, overall confidence rose from 87.1 up to 89.3 compared to expectations for an increase to 89.0.  As illustrated in the chart below, after the initial plunge last Spring, Consumer Confidence has been bouncing up and down for the last ten months at levels well below the pre-Covid peak.

Whether you look at consumer sentiment towards present conditions or the future, it’s a similar picture.  Expectations were already much lower heading into COVID, so they didn’t fall nearly as much, but after the plunge in the Present Situation Index, consumers feel roughly the same about the present as they do about the future.

With all the positive news about the vaccine rollout and the market at record highs, why aren’t consumers more confident?  Chalk it up as a case of “It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”  As shown in the chart below, the gauge of “Jobs Plentiful” embedded in the Consumer Confidence report remains extremely weak, and if you look closely, it’s also showing some signs of rolling over.  When consumers are worried about hanging on to their jobs, it’s going to be hard for them to be confident.

There have been some crazy moves in the stock market, so we were surprised to see that consumer optimism towards the stock market actually fell this month.  In this month’s survey, just 34.8% of consumers said they expect stock prices to increase, while nearly an equal number expect stock prices to decline.  In this survey, at least, it doesn’t appear as though consumers are anywhere close to irrationally exuberant.

Lastly, we wanted to highlight where consumers expect interest rates to go.  Back in April at the height of the pandemic, the percentage of consumers expecting interest rates to rise was nearly equal to the percentage that expected rates to fall.  Since then, though, we’ve seen a steady increase in the percentage of those expecting rates to rise.  Granted, when rates are at or near zero, it’s hard to expect rates to go any lower, but with little improvement in both overall confidence and the percentage of consumers viewing the job market as getting better, you wouldn’t expect to see half of all consumers anticipating a higher rate environment. Click here to view Bespoke’s premium membership options for our best research available.

Just like yesterday’s reading out Dallas, this morning’s release of the Richmond Fed’s Manufacturing survey was disappointing relative to expectations.  Forecasts were calling for the index to hold steady at the December reading of 19. Instead, it fell 5 points to the lowest level since July. Like the Dallas Fed’s survey, this reading points to a still-growing but also decelerating manufacturing sector in the Fifth District that also goes contrary to other strong readings like those from Markit and the neighboring Philly Fed; both released last week.

That decline in the headline number was shared in most of the underlying components.  Of the 17 sub-indices, 12 were lower month over month.  For some of these, those declines were historically large and brought the indices to the bottom percentiles of historical readings. Currently, there are now four indices indicating contraction. Two have to do with expenditures, one with finished good inventories, and the other for the availability of skills. As for the indices for future expectations, breadth was similarly weak.

New Orders erased all of the move higher from December as it came in at 12, just as it did in November.  With New Orders growing at a slower pace, the Backlog of Orders likewise grew at a more muted pace.  That index fell to 6, the lowest reading since August.  The 11 point MoM drop was also in the bottom decile of all monthly moves.  Given the deceleration of these two, Shipments likewise pulled back. The index for Shipments fell to 10, the lowest reading since the last contractionary reading back in June.  While that slowdown in shipments is likely in part due to some slowing in demand, supply issues also appear to be a potential issue.  Higher readings in the Vendor Lead Time index means that suppliers’ products are taking longer to reach the surveyed manufacturers. This month, the index rose to a reading of 39. That is in the top 1% of all readings in the history of the survey.  The only higher readings came early in the survey’s life in December of 1994 (282) and January of 1996 (75).

As orders still grow, manufacturers are taking on more employees.  The index for the Number of Employees rose from 20 in December to 23 in January. That ties the pandemic highs from September and October for the highest reading since August of 2018.  Similarly, the index for expectations for Number of Employees made its way higher in January. At 34, the index has only been higher once back in September.  Although employers are taking on more people and expect to keep doing so at a historic rate, both of the indices for Wages and the Average Workweek were lower.  Regardless, they both remain at historically strong levels and consistent with further growth. Additionally, one of the components of the report that is the most at an extreme is the index for Availability of Skills. The index dropped another 10 points in January and now sits in the bottom 3% of all readings since the series begins just over a decade ago.  In other words, firms are experiencing a historic shortage of labor with desired skills.

Contrary to the increase in employment, firms are cutting costs elsewhere. For the current conditions indices of the three expenditure related topics, each one was lower in January with Equipment and Software Expenditure and Business Services Expenditure both falling into contractionary territory.

Finally, just as we have seen in other manufacturing surveys, prices are showing further acceleration for both prices paid and received. Prices paid came in at the highest level since April of 2019 and prices received at the highest level in 11 months. Click here to view Bespoke’s premium membership options for our best research available.

Following very strong readings from the Philly Fed and preliminary Markit PMIs last week, the Dallas Fed’s Manufacturing report released this morning disappointed.  The headline index came in at 7 compared to forecasts of a reading of 12 and last month’s adjusted reading of 10.5. That reading is still consistent with overall growth in the region’s manufacturing sector, but at a slower pace as the index fell to the lowest level since August.

The index for General Business Activity was far from being the only one to fall month over month.  As shown below, breadth in this month’s report was terrible.  Of the 17 different indices for current conditions, 13 fell month over month. That brought several of these readings from the top decile of historical readings down to the middle of their historical ranges. While the pullbacks were significant, only inventories remain in contraction.  Meanwhile, breadth was a little bit better for the indices for future expectations.

One area that saw declines across the board were the indices concerning demand.  As shown below, the indices for New Orders, New Order Growth Rate, Unfilled Orders, and Shipments were all lower in January. All of these are now at the lowest levels since June, or July in the case of order growth rate. These lower readings are still indicative of growth, but at a slower rate.

Just as we have seen in other recent manufacturing reports, survey respondents are reporting price increases.  The index for prices paid rose to a reading of 55 from 50.8 in December.  That is nearly in the top decile of all readings as the index sits at the highest level since April of 2011.  The index for future expectations similarly ticked higher reaching its highest level since March of 2012.

While prices paid were higher, the same sort of acceleration in prices was not observed for prices received.  The index for prices received fell from 19 down to 13.9.  Although lower month over month, that is still around some of the highest levels of the past couple of years.  Additionally, expectations are calling for prices received to follow the path of prices paid.  The index for future prices received rose to the highest level since 2017 which was also in the top 5% of all readings.

Similar to prices received, the current conditions index for wages and benefits fell this month, but the index for future expectations rose much more sharply and to one of the highest readings of the past couple of years. In other words, although price hikes were not observed, they are foreseen on the horizon.  For wages and benefits, that expected uptick comes as hiring continues with the index of employment remaining in expansionary territory.  Additionally, hours worked rose this month from 9.5 to 12.6; the highest in September of 2018.  Click here to view Bespoke’s premium membership options for our best research available.