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Armed With Latest Consumer Confidence Data, Fed Still Eyes Rate Cut

U.S. consumers are more confident than ever, shrugging their shoulders on talk of trade, tariffs and rising prices, but at the business level the mood could be vastly different.

On Tuesday, The Conference Board said its Consumer Confidence Index rebounded in July by 11.4 points, representing the largest monthly pop since November 2011. That kind of jump suggests a very healthy consumer sentiment, one that pushes the odds for a recession further out than many have anticipated.

But the uptick in confidence levels comes at a time when the Federal Reserve is expected to cut rates to keep the economy on the move. That’s because the Fed is more concerned about business confidence. The Fed on Tuesday began its two-day FOMC meeting to discuss and review economic conditions.

Tim Quinlan, senior economist at Wells Fargo Securities, expects a cut of 25 basis points, noting that “below-target inflation and trade and other geopolitical uncertainties cloud the economic outlook.”

At least one sector might be seeing early signs of a slowdown that’s been in the works for about four months, suggesting that perhaps the overall economic picture isn’t as rosy as one might think.

Rob Misheloff is founder of equipment finance firm Smarter Finance USA, a company that


brokers transactions to 25 different banks and private investors and has a concentration primarily in transportation equipment lending. According to Misheloff, transportation is often viewed by economists as a leading indicator, and he said earlier this month that there’s been talk about how much harder it has been to get trucking deals done.

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“We’re not seeing it in the performance of our portfolio, but there’s been talk in the industry about rising defaults and delinquencies in the trucking portfolios of other financing firms,” Misheloff said.

What he’s also heard is that lenders are now pushing for higher down payments in order to get deals done, suggestive of increasing pressure in the financing pipeline. So far, in the past six months, two subprime lenders have folded up their tents, Misheloff said. He also said truckers have complained about lower payments for hauling loads.

“We’re hearing some folks say they were getting $2.00 a mile, whereas now they are getting $1.60 a mile,” he said.

If some business owners are starting to feel the heat of an early slowdown, it certainly hasn’t yet trickled down to any concerns at the consumer level.

In the latest survey, the Consumer Confidence Index rose to 135.7 in July, up from June‘s level where it had dropped to 124.3. Both components of the Index also saw gains. The Present Situation Index, which addresses the assessment of current conditions, rose to 170.9 from 164.3 last month. And The Expectations Index, which focuses on respondents’ short-term outlook, jumped to 112.2 from 97.6.

Lynn Franco, senior director of economic indicators at The Conference Board, said, “After a sharp decline in June, driven by an escalation in trade and tariff tensions, Consumer Confidence rebounded in July to its highest level this year.” Franco said the high levels of confidence “should continue to support robust spending in the near-term despite slower growth in GDP.”

Ryan Sweet, economist at Moody’s Analytics, noted that while confidence has been volatile this year, the gain in July “does likely reduce the odds of a recession in the next 12 months.”

The Conference Board’s survey had July 18 as the cutoff date for preliminary results.

For the current assessment, those who said business conditions are “good” increased to 40.1 percent from 37.5 percent, while consumers’ appraisal of the labor market was also up as those who described jobs as “plentiful” rose to 46.2 percent from 44 percent.

Looking ahead, about six months out, those who said business conditions will be better rose to 24 percent from 19.1 percent. They were also positive on the labor front, with those expecting more jobs in the months ahead increasing to 20.5 percent from 17.5 percent.

Wells Fargo’s Quinlan said the July consumer confidence survey suggests that “consumer spending looks set to rise in the second half of the year.”