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Americans are brimming with confidence, despite trade wars and recession signs

"The first half of the movie wasn't that scary," a Wells Fargo economist explains

You need a lot of confidence to buy a big-ticket item like a home. And, Americans are brimming with assurance about the economy and the labor market, according to the Conference Board’s index released on Tuesday. The gauge of present conditions jumped to 177.2 in August, the highest reading in almost 19 years.

That level of optimism left a lot of economists scratching their heads. The U.S. trade war with China seemed at times to be escalating out of control in August, the stock markets posted their biggest losses of the year and the bond markets flashed recession signals.

“We were braced for a different kind of report,” Tim Quinlan, a senior economist for Wells Fargo Securities wrote in a note to clients. “Given the financial market instability during the month and constant headlines about the trade war, a more substantial decline in today’s measure from the Conference Board would not have raised many eyebrows.”

But, he warned, the high reading may be due to the mid-August cut-off date for the survey, which meant many of the month’s distressing events hadn’t yet registered. 

“The first half of the movie wasn’t too scary,” Quinlan wrote. “If you find it surprising that it apparently takes more than the remarkable events of August to meaningfully suppress consumer confidence, consider the fact that the cutoff date for these preliminary results is August 16. There is scope for downward revisions once the dust has finally settled.”

And, Quinlan pointed to the difference between the gauge of “current conditions” and the “expectations index” that asks consumers how things will be in six months. That reading declined to 107.0 in August from 112.4 last month.

“One clear takeaway from today’s report is that consumers see the writing on the wall in terms of how long the good times can last,” Quinlan wrote. “Only one other time in the past 18 years has there been such a confidence gap between where we are and where consumers think we are headed.”

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