US Consumer Confidence Soars Yet Again Without the Backing of Hard-Data

Talking Points:

- US Consumer Confidence soars past estimates at +125.6; highest level since December 2000.

- Strong sentiment diverges from hard data trends.

- US Dollar surges initially, falls after

The US Consumer Confidence index in March revealed that sentiment surged to its highest level since December 2000. The latest data soared above expectations at 125.6 vs 114.0 projected. Strong sentiment in March was also reflected in the Confidence Board Present Situation and Expectations, which were above estimates at 143.1 and 113.8, respectively.

Consumer Confidence is a key indicator in assessing consumer sentiment regarding business conditions, employment and personal income. The Conference Board index has the largest pooling sample of any U.S. measure of consumer confidence. The index generally serves as leading indicator for consumer spending. Higher the confidence levels may encourage consumer spending. On the contrary, lower or falling consumer confidence on the other hand is typically associated with decreased spending and consumer demand. This is key especially in today’s market where roughly 70% of US GDP direct related to consumption.

In March, sentiment surged past February’s 16-year high as the divergence between “soft-data” and “hard-data” continues to widen. For more on the differences between sentiment and hard-data please refer to Senior Currency Strategist Christopher Vecchio’s, DXY Looking for a Lifeline as it Nears Crucial Support. The remarkable sentiment comes as a bit of a surprise considering the short-term weakness seen in the US Dollar against the majors.

It is worth noting that the Confidence Board surveys were taken before the Trump administration’s failure to pass new health care legislation: the reporting period was through March 16. This is important because markets viewed the legislation as indicator of the administration’s success to pass much-needed fiscal policy. The Confidence Board’s survey also revealed that strong sentiment is concentrated amongst consumers in higher income levels. For example, sentiment amongst those who earn >$125,000 increased by 17.4 over last month whereas, sentiment increased by a mere 8.2 points amongst those who earn <$15,000.

As we look ahead at a busy week in the economic calendar the Fed will be paying close attention to the hard data. This includes the personal consumption expenditure price index, pending home sales, and gross domestic product. These indicators are key because The Fed relies on hard data to make monetary policy decision, i.e. rate hikes. We can expect to see disappointment amongst consumers given a missed print. As of right now, data does not support three rate hikes in 2017.

- USD Conf. Board Present Situation (MAR): +143.1 actual versus +134.4 previous

- USD Conf. Board Expectations (MAR): +113.8 actual versus 103.9 previous

See the DailyFX economic calendar for Tuesday, March 28, 2017

Chart 1: EUR/USD 1-minute Chart (March 28, 2017 Intraday)

US Consumer Confidence Soars Yet Again Without the Backing of Hard-Data

Immediately following the data, the Euro fell slightly against the US Dollar, but the drop was not sustained for long. EUR/USD fell from 1.0868 ahead of the release to as low as 1.0856 thereafter; but at the time this report was written, the pair hit an intraday high at 1.0872. Markets have shown that they are not as confident in the US Dollar as consumers are in the economy.

--- Written by Dylan Jusino, DailyFX Research