Oct 06, 2017 | Post by: Roman Chuyan, CFA Comments Off on Economic Optimism – But Not Much Else

Economic Optimism – But Not Much Else

Consumer and business sentiment surged since the election, and remained high this year:

Consumer confidence

High confidence is typically followed by high economic activity. Oddly, this has not occurred. The bankers who advise the Federal Reserve board of governors were puzzled earlier in September by a slowing credit demand despite high levels of sentiment:

“The post-election expectation was that the gain in confidence and financial market deregulation would spur credit creation… While consumers and businesses remain optimistic, that has not translated into significant growth in loan demand.” [1]

With two months’ worth of Q3 economic data reported, the Atlanta Fed’s estimate of Q3 GDP growth stands at 2.3%. The Blue-Chip economists’ consensus is at 2.7%. If we average the two, growth around 2.5% may be disappointing after Q2 printed at 3.1%.

US Car sales - Autodata total vehicle sales, 5y

Five-year chart of Autodata’s vehicle sales is shown above. After sales remained around three-year lows of 16.8 million annual rate in the previous three months, they took another decisive dip to 16.14 million in August. If consumers are optimistic, why are they not buying cars? This is a concern.

[1] Source: the minutes released by the Federal Reserve Board of its Sept. 8 meeting with Federal Advisory Council.

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Disclaimers: Roman Chuyan is a partner of Model Capital Management LLC, a Registered Investment Adviser. This article is for informational purposes only. There are risks involved in investing, including loss of principal. The author makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by him or Model Capital Management LLC. There is no guarantee that the goals of the strategies discussed in this article will be met. Information or opinions expressed may change without notice, and should not be considered recommendations to buy or sell any security.

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