U.S. Consumer Confidence Rises to Highest Since March 2008
Taking a look at the breakdown of the report, the labor differential came in at -39.0 which was the highest since a year ago, while the conference board’s measure of present conditions increased to 30.2 this month, marking the highest reading since December 2008. At the same time the gauge of expectations for the next six months soared to 85.3 from 77.4 in April.
|Unemployment versus Nonfarm Payrolls
Employment in U.S. soared 290K, the most in four years in April, while the unemployment rate rose to 9.9% from 9.7% the previous month. At the same time, the 2010 census added only 66K workers, while other job gains were in sectors such as manufacturing which was largely impacted during the financial crisis.
This suggests that previously unemployed Americans are returning to the labor force amid an improved labor outlook. Looking ahead, employers may continue to add jobs as sales and profits increase.
|Consumer Confidence versus Michigan Sentiment
The preliminary reading for the University of Michigan Confidence in May rose to 73.3 from 72.2 the previous month.
The relationship between the Consumer Confidence and Michigan Sentiment are tightly correlated, with the Michigan Index tending to be the first of the two readings to reverse course.
In 2009, Consumer Confidence underperformed Michigan, a direct fit with Michigan which leads to turning points.
Recently, Federal Reserve Bank of New York President William Dudley stated that the central bank wants to keep inflation “low and stable,” and went onto add that the banking system is “still under significant stress.” Looking ahead, Market participants are weighing in a zero percent chance that the Fed will hike rates twenty five basis points at its next rate decision on April 28th, while pricing in a thirty basis point rate increase for the next twelve months, according to the Credit Suisse Overnight Index Swaps. All in all, the recent developments with Spanish banks, Greece’s debt crisis, and the possible spillover effects onto other euro-area members are further reasons why the Fed are likely to become more cautious, with no likely chance of movement in the Fed Funds target rate until late this year, early next year.
Written by Michael Wright, Currency Analyst
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