USD CAD stays rangebound on the back of mixed US economic data continues to muddy sentiment. Analysts were surprised by a significant drop in consumer sentiment and consumer expectations, as well as a small rise in existing home sales. This trifecta of factors has continued to keep the currency pair trapped between a widely telegraphed range, indicative of investors’ uncertainty.
The Consumer Expectations Index was revised down to 54.6, a decline from an original estimate of 55.0. This figure misses market expectations, which had called for a flat print of 55.0. The Consumer Sentiment Index settled at 52.9. That’s a decline from the previous estimate of 53.4 and below the expected 53.3. These are all signs of a cooling sentiment from the consumer side, which is likely to bleed further into economic growth in the near term.
Consumer Expectations and Sentiment Decline
The October revision of the Consumer Expectations Index to 54.6 spells bad news as consumers are bracing themselves for further weakness in the economy. Originally forecasted at 55.0, this downward adjustment illustrates a spreading worry about the direction of the economy. The market had been expecting zero change in this index, so the revision is even bigger news.
On that same note, the decline of the Consumer Sentiment Index to 52.9 further indicates a decrease in consumer confidence. This figure was previously estimated at 53.4 which means that American consumers are feeling more pessimistic than they had been believed to be. The index badly missed market forecasts of 53.3, indicating increased consumer spending headwinds in the months ahead.
These significant drops in consumer confidence indices, of course, bring up major concerns over household spending, which is the bedrock of all economic expansion. If consumers are less confident about what the future holds, they might start to spend less, which would contribute more drag and bring down overall growth projections.
Existing Home Sales Show Modest Growth
Yesterday, even with all of this dismal consumer sentiment, existing home sales for November were up 0.5% m/m. This increase comes on the heels of an impressive 1.5% bounce back in October. While this rise in home sales likely indicates strength in the housing market in spite of larger economic worries, there’s still a bit more to unpack.
The increase in existing home sales indicates that buyers remain eager to purchase. They might be enticed by favorable mortgage rates or need to secure investments before values rise. Analyst warn this growth is slow and can’t be seen as the start of a long-term trend without even more economic recovery.
The housing market has long been a bellwether of the broader economy. As important as the increase in existing home sales is, we must continue to watch other economic indicators to better predict consumer behavior and gauge market health.
Inflation Expectations Hold Steady
Against this backdrop of conflicting signals, five-year inflation expectations were unchanged at 3.2%, matching the initial projection and market forecasts. Such stability indicates that long-term inflation expectations have not wavered much, giving investors a line of demarcation.
One-year consumer inflation expectations increased to 4.2%, from a prior estimate of 4.1%. While this increase is in line with market predictions, it shows that consumers are expecting prices to rise over the short term. This development could influence spending patterns as consumers adjust their financial strategies based on expected inflation trends.
The gap between fixed long-run inflation expectations and increasing near-term expectations may make future monetary policy choices more difficult. Policymakers will have to think about how these perceptions can affect consumer sentiment and economic momentum in the long-term.