OpenMarkets Weekly: Finding Economic Confidence

At a Glance

  • The economic emergence from COVID-19 could depend largely on consumer confidence levels. We look at two critical reports.

It’s said that consumer confidence is one of the pillars on which the markets stand.  With the rise of COVID 19 and its associated lockdowns, confidence takes on special importance. Any economic recovery will depend on it. Let’s take a closer look at two important confidence indicators that provide valuable data to traders and investors.

The University of Michigan  Consumer Sentiment Index

This index tracks the responses of 500 U.S. consumers to 50 core questions. May’s index showed a slight uptick from April, but was more than 27% below the confidence index of May 2019. As the U.S. returns to work and lockdowns are lifted, this index will be closely watched to gauge whether or not confidence can be sustained, or if it is a reflection of some of the policy measures taken by U.S. Congress and The Federal Reserve.

The ability to predict major changes in consumer confidence allows businesses to assess the willingness of consumers to make new purchases. As a result, businesses can alter their operations and the government can prepare for changing tax revenue.

The Purdue University/CME Group Ag Economy Barometer

The agricultural markets have their own confidence indicator. The Ag Barometer is a nationwide measure of the health of the U.S. agricultural economy. Similar to consumer sentiment, it provides a sense of the agricultural economy’s health with an index value. The index is based on a survey of 400 agricultural producers on economic sentiment each month.

Improved sentiment regarding current conditions will lead to farmers becoming more inclined to make large investments in their farming operations, and lower expectations will result in less ag capital expenditures.

Looking at the barometer in the April -May 2020 timeframe, one can see the clear lack of confidence caused by the pandemic resulting in a severe dip in the index. As the economy came to a halt, the Ag Barometer went from a high of 168 to 96.

For traders and investors, it becomes imperative to know what tools are at your disposal for understating market conditions.  Consumer and producer confidence are important gauges on the health and sentiment of capital markets and agriculture.

Watch the full OpenMarkets Weekly episode above.

 

Hagop (Jack) Bouroudjian is the Chief Economist, co-founder and director of the UCX Tech. He’s also Chairman and co-founder of the Global Smart Commodity Group. Jack was a member of the board of directors of the CME Group during which time he served as Chairman of the Equity Indices Committee and helped create the Russell 2000 futures and options, S&P Midcap 400 futures and options and the revolutionary E-mini futures concept. Jack is a published author of "Secrets of the Trading Pros" (Wiley 2007) and appears regularly as a paid, guest contributor for CNBC. Jack graduated with honors and distinctions from Loyola University of Chicago and is happily married with two adult children.

Additional Recent Articles in Economics