Consumer Confidence - The Post-Election Euphoric Shine Faded But It's Still Super

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Includes: DIA, QQQ, SPY, XLY, XRT
by: Markos Kaminis

Summary

Consumer Confidence was reported decreased in May, however it remains at historically high levels.

Post the presidential election, a series of positive economic actions by the Administration served a stock market rally and aided consumer confidence.

More recently, a series of questions about the competency of the Oval Office have taken the shine off a bit.

Still, do not fear, because I see consumer spending data starting to show signs of a tangibly improved state of affairs.

I will not say Consumer Confidence decreased in May, though technically it did from April and from its peak in March. Rather, I see confidence normalizing from a post-election euphoric high and peak in March. Let's face it, some of the shine has come off the new car after a series of positive economic and securities markets moves by the new Administration induced euphoria. More recently, foreign policy actions and the Oval Office scandal have weighed on the mood of the people a bit. But folks are not in a bad mood, just a more normal positive state. That fact is evidence and supported by other data.

The Conference Board reported Consumer Confidence for the month of May this morning. The news was good, just less good than the euphoric high seen in March. The Consumer Confidence Index is still around 20-year high levels, though it fell in May to 117.9, down from a revised level of 119.4 in April (revised from 120.3). It's way down from the euphoric high marked in March of 124.9.

Let's face it, though, from his election eve victory speech and through a series of actions to keep jobs in America and create new jobs in America, along with legislative efforts to reduce regulation on small businesses and financial institutions, not to mention a tax reform plan, Donald J. Trump has satisfied capitalist America.

Then we sent warships to North Korea, rained down 59 missiles on Syria, upsetting its allies in nuclear-Russia and Iran, and raised the prospect of dare I say world war. It's my view that over the last two months we've seen a much more engaged foreign policy strategy for the Middle East, and that is probably something that concerns investors and consumers.

And then there is the Oval Office scandal, which has raised other concerns. I'll just list what has happened. General Michael Flynn was forced to resign from his position as National Security Advisor to President Trump due to his withholding of information about meetings with Russians. Not long thereafter, the president shared top-secret information from a third-party source (allegedly Israel) with our adversary (Russia) that could compromise that source, one allegedly close to ISIS. Because of that and other concerns, it's possible our allies may not share intelligence with us as readily as they have in the past. Then the president fired FBI Director Comey, allegedly after he asked him to cease the investigation of Russia's meddling in the presidential election. Just recently, Trump son-in-law Jared Kushner has come under fire, as it is being alleged he took part in inappropriate meetings with Russians. Over the weekend, the president criticized close ally Germany on their commitment to NATO and trade with the U.S. Today, the president's communications director resigned.

Even so, Consumer Confidence was just reported pretty darn strong. Let's look at some of the details. First of all, even while the index declined, the most important measures of how people feel held up. For instance, the Present Situation Index, which measures consumers' current mood, improved in May to 140.7, up from 140.3 in April. The Expectations Index fell to 102.6 in May, down from 105.4 in April. There is certainly uncertainty in the air, but consumers (NYSE: XLY) are feeling good about things right now and it's my view that for those who have jobs, that is what matters most right now.

Consumers (NYSE: XRT) feel positive about current business conditions, with those seeing things as "good" increasing in number and those seeing things as "bad" holding steady in count. Consumers' assessment of the current labor market was positive, with those stating jobs were plentiful declining marginally while those claiming jobs are hard to get falling more so. This is a sign, in my opinion, that slack in the labor force (the long-term unemployed) is finally being mitigated by economic growth and demand for workers.

The view of the forward outlook six months out was less optimistic, though, I believe because of the uncertainties I outlined. Those expecting business conditions to improve decreased while those expecting business conditions to worsen also declined, but slightly. Consumers' outlook for the labor market also deteriorated, but it's not negative. Those expecting more jobs to open up decreased, but those expecting fewer jobs to open up also decreased to a much lower level. There were also significantly more people expecting their incomes to increase than there were expecting their incomes to decrease, though more pessimism was evident than the prior month.

In conclusion, while consumer confidence decreased in May, it's just coming down from a post-election euphoric high to a more normal state given recent uncertainties raised about the Administration's competency. But other data seems to support the case for a still positive consumer mood, and one that is starting to show fruit. For instance, today's Personal Spending data marked a gain of 0.4%, which on the surface looked in line with economists' expectations. However, the prior month's data was revised significantly higher, meaning the absolute value of consumer spending increased to a level higher than was expected by economists. Recently, GDP data for Q1 was adjusted higher, and the Fed, most economists and yours truly are looking for much better growth in Q2. So don't sweat what appears to be a deterioration of confidence. Confidence remains historically elevated, though it sits at a more normal level now and still supports stocks (NYSE: SPY) (NYSE: DIA) (NASDAQ: QQQ). For more of my work on the economy and markets, I welcome readers to follow my column here at Seeking Alpha.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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