Consumer Confidence Burnout Could Scorch the Dow in 2020

Consumer burnout could hit the U.S. economy in 2020 - and send the Dow tumbling. | Image: AP Photo/Mark Lennihan, File

• The stock market is booming, but the Consumer Confidence Index has declined for four straight months.
• The latest CCI report from the Conference Board assures that confidence remains high despite falling again in November.
• But since July the index has declined by 7.5%. A change of 5% or more often indicates a change in the market

The stock market bull run continues as the Dow, S&P 500 and NASDAQ extend record highs in November. But consumer confidence has declined for the fourth month in a row. Weaker confidence in jobs, business and income reveal consumer worries on the verge of an alarming burnout.

The latest monthly figures from the Conference Board place the index at 125.5 (as against the board’s 1985=100 reference point).

Consumer Confidence Plunges Since July

The Board projects weak fourth quarter GDP growth from the data, but assures businesses that growth “will remain at about 2 percent” in early 2020. The economic research organization also expects solid Black Friday sales:

Overall, confidence levels are still high and should support solid spending during this holiday season.

But November’s 125.5 index is a statistical red flag. It represents a sustained 7.5% swing from the July CCI of 135.8.

The manufacturers, retailers, banks, and government agencies that rely on the Consumer Confidence Index to gauge the economy usually dismiss a move of less than 5% as inconsequential. But larger swings of 5% or more have often signaled a change in the economy’s direction.

OECD composite indicators of consumer opinion in the United States have also fallen since May. The UMich Consumer Sentiment index is a bit brighter in November, but still down to 96.8 from a May high of 100.

Belt Tightening Could Tank The Dow

Strong consumer spending propped up the U.S. economy amid recession fears earlier this year. A consumer retreat could erase much of the Dow’s gains over recent months. Consumer discretionary stocks in the Dow would suffer most.

If consumer confidence continues the downtrend, Americans will cut back on non-essential purchases such as new clothes, electronics and vacations. Apple Inc., The Home Depot, McDonald’s, Microsoft, Nike, Walmart, and The Walt Disney Company would be hardest hit.

While the economy seems relatively stable, consumers face an array of threats and uncertainties. The uncertainty of election years is typically a drag on stocks from September until May of the election year. Political uncertainty also makes consumers cautious.

The four month downtrend in CCI also tracks with three consecutive months of slowing job growth in August, September and October.