Watch what consumers do

·Head of News

Mon, Aug 30, 2021, 11:52 AM3 min read

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Monday, August 30, 2021

And focus less on what consumers say

Over the last month, we've spent considerable time in this newsletter following the seeming ebbs and flows of the U.S. consumer.

Consumer confidence has taken a hit amid the spread of the Delta variant and some inflation pressures. Meanwhile, quarterly results from retailers across the spectrum suggest consumers remain ready, willing, and able to continue spending and powering this economic recovery.

On the one hand, consumers tell us their view on the economy hasn't been this bad in over a year. On the other hand, establishments that sell goods and services to consumers say the backdrop remains as strong as it has since the pandemic recovery began.

On Friday morning, as markets were focused on Federal Reserve Chair Jay Powell's remarks at the Jackson Hole Economic Symposium, the University of Michigan released its final look at consumer sentiment in August. And as this report's preliminary data suggested a few weeks back, there has been a distinct pullback in how consumers feel about their economic prospects this month.

"Consumers' extreme reactions were due to the surging Delta variant, higher inflation, slower wage growth, and smaller declines in unemployment," said Richard Curtin, chief economist for the survey. "The extraordinary falloff in sentiment also reflects an emotional response, from dashed hopes that the pandemic would soon end and lives could return to normal."

Which is certainly not an encouraging assessment of consumers going into the holiday season, given that consumption accounts for around two-thirds of GDP growth.

But in an email on Friday afternoon, Renaissance Macro's Neil Dutta flagged the Chicago Fed's retail tracking survey, which suggests robust growth in spending has taken place this month. "It might be worth pointing out that the Chicago Fed is currently forecasting a 2.4% increase in retail sales in August," Dutta wrote. "This forecast is based on actual data as opposed to conjecture."

In other words, watch what consumers are doing, not what they are saying.

And we see versions of this when trying to square downbeat commentary from consumers with upbeat commentary from the executives running the stores people are flocking to.

This week, Dick's Sporting Goods (DKS) CEO Lauren Hobart, for instance, said consumer demand is "very, very strong" on the company's earnings conference call. Executives at the Gap (GPS) called out a "backdrop of strong consumer demand" on their earnings call. The team at Best Buy (BBY) referenced an "overall strong consumer spending, aided by government stimulus, improving wages and high savings levels," on their call.

And these examples go on.

And Curtin also noted that a nosedive in confidence need not portend something worse about the state of the economy. "The August collapse of confidence does not imply an imminent downturn in the economy," Curtin added.

The backdrop for the U.S. economic recovery remains dynamic amid a virus that is still spreading, supply chain issues that are far from resolved, and a labor market that is still operating below capacity. Which makes getting a clean look on the status of the economy more challenging than ever. And favors looking most closely at what we can count.

By Myles Udland, reporter and anchor for Yahoo Finance Live. Follow him at @MylesUdland