Why Consumer Confidence Is Dropping (It’s Not Just Inflation)

The Conference Board’s latest monthly consumer confidence survey shows Americans’ downbeat mood continues this month. We all know the culprits: spiraling inflation, supply shortages, the Omicron variant, a falling stock market (the S&P 500 entered correction territory Tuesday, down 10% from its high).

This all leads Bill Adams, chief economist for Comerica Bank, to a feeling that the US economy’s best days are behind it, at least for now. “Many consumers think the recovery’s fastest gains are already realized, and the economy is likely to slow toward its trend in 2022,” he said.

He noted that the survey was taken before Russia sent troops into Ukraine’s two breakaway provinces, which the White House labels as a first step to a full-scale invasion of the rest of that nation. The most significant immediate impact of that for US consumers is that oil prices will keep escalating, as Russia’s exports now are uncertain. “Consumer confidence could dip lower over the next month depending on how the crisis affects gas prices at the pump,” Adams warned.

The sentiment survey had shown a good recovery through 2021—until the end when inflation and other woes began weighing on perceptions. The February reading marks the lowest in five months.

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One piece of solace from the poll is that the public has less of a sour view about the longer term, defined as beyond the next six months. “While they do not expect the economy to pick up steam in the near future, they also do not foresee conditions worsening,” the research group’s analysis of the survey said.

The slide is marked by fewer people set to buy homes, major appliances, and autos or planning to vacation over the next six months. In fact, vacation planning was at the same level this month as in August 2020, early on in the pandemic when fears were high.

At the same time, joblessness is low, pay is climbing, and the coronavirus is (for now) subsiding. What’s more, data firm IHS Markit released a study showing a rebound in both goods and services outputs. This is the result, it said, of “employees returning from sick leave, increased traveling and greater availability of raw materials.”

Don’t Worry: The Economy Will Boom Up Ahead, Says Dimon

What They Say, What They Do: Maybe US Consumers Aren’t So Dour

Tags: Bill Adams, Comerica Bank, Conference Board, consumer confidence, Economy, jobs, oil and gas, Pandemic, pay, Russia, Ukraine, vacation planning

The State of Wisconsin Investment Board reported that its $136 billion core fund, the larger of the two fully funded Wisconsin Retirement System trust funds, finished 2021 with a preliminary net return of 16.89%.

The core fund also reported preliminary five- and 10-year returns of 12.47% and 10.10%, respectively, net of fees, and it outperformed its benchmarks for the periods, easily surpassing its 6.8% annual rate of return target.

SWIB said that over the past 20 years, its active management and diversified holdings generated for the core fund $34.3 billion more than what it would have earned if it had been invested in a low-cost passive portfolio consisting of 60% global equities and 40% domestic bonds. The investment board also said its investment management has added more than $2.2 billion in value to the WRS trust funds above benchmark returns over the past five years on a preliminary basis.

“In 2021, SWIB generated strong investment returns in a market environment dominated by the ongoing effects of the coronavirus pandemic, continued substantial fiscal stimulus, and the response of the Federal Reserve while interest rates, inflation, and supply chain backlogs grabbed headlines and influenced investor sentiment,” Edwin Denson, SWIB’s executive director and CIO, said in a statement. “We have implemented a robust and diversified asset allocation that can help us navigate changes in market conditions.”

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The core fund’s target asset allocation is set at 52% in public equity, 25% in public fixed income, 19% in inflation-sensitive investments, and 7% in real estate. SWIB said the figures exceed 100% due to the overall leverage of the core fund’s assets, and that the actual asset allocation may vary up to plus or minus 6% from the targets.

Meanwhile, SWIB’s $10.9 billion variable fund, an optional stock-only fund, performed even better and closed out the year with a preliminary net return of 19.95%, along with preliminary five- and 10-year returns net of external manager fees of 15.52% and 13.75%, respectively.