June 3, 2019 — Consumer Confidence Rises, but Yield Curve Signals Possible Recession

JUNE 3, 2019 – CONSUMER CONFIDENCE RISES, BUT YIELD CURVE SIGNALS POSSIBLE RECESSION

May consumer confidence soared following the unexpectedly good jobs number posted for April. This is significant, as consumer spending is the primary driver of GDP, and confidence is at its highest level since November.  Unemployment continues to come in at historically low levels; the data has not been this low since 1969.

Headline consumer confidence rose to 134.1 in May from 129.2 in April, with expectations were for an increase to 130.  This level of confidence equals that reached at the end of 2018, the peak being 137.9 in October.  The numbers support the theory that the slowdown in consumer activity in the beginning of this year was transitory.  With conditions in the labor market being tight, it is not impossible the unemployment rate could fall to 3.4 percent later this year — leading to sustained growth.

On the other hand, when we look to the inverted yield curve the picture is not as optimistic. Wednesday saw the inversion reach its widest point since 2007. Yields on long-term government bonds around the world are that their lowest levels in years, which may be indicative of an economic slowdown.  But the inversion presents an opportunity to enter into a floating-to-fixed swap and immediately reduce your borrowing costs up to .75%.

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