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.

 

H. Jack Bouroudjian is chairman of Bull & Bear Partners, a financial services holding company based in Chicago. He is the host of the syndicated program “The Jack B. Show”, a regular commentator on CNBC, author of “Secrets of the Trading Pros” (Wiley, 2007) and a columnist for Townhall Finance.

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