A post-government-shutdown recovery in consumer sentiment has been aborted, according to a Jefferies Equity Research analysis, published January 14. Geopolitical issues were blamed, as was worsening unemployment for younger workers.
“Tracking spending has been messy, given the funny date compares, but it’s safe to take the ‘upside case’ … off the table,” regarding holiday shopping, wrote Jefferies analysts.
The United States’ invasion of Venezuela took some of the blame, with Jefferies reporting, “Sentiment sharply collapsed across many of the cohorts we follow over the past two weeks.” While other factors could be cited, the analysts wrote, “The geopolitical headlines concerning military action appear to be the key driver.”
Jefferies’ team pegged consumer sentiment at ’95,’ halfway between the shutdown lows and Christmas-week highs. The analysts reported across-the-board spending weakness, including net buying conditions and personal finance.
Five-year business outlooks were also gloomy. “While this leads us to believe that there is underlying economic pain, the wide dispersion of sentiment changes across consumer cohorts (biggest drops in most educated, older workers) suggests the majority of the decline was headline-driven,” Jefferies concluded.
The labor market was a mixed bag. “Incremental improvement” in overall employment was seen, but offset by other factors. Sentiment among workers in the 18-to-24 bracket was said to be at its worst since late 2020.
Also, loss of pay was reported by 14 percent of survey respondents, the worst such figure seen since the middle of 2021. “While there may be some seasonal dynamics complicating the picture … employees of smaller employers have been faring much worse than their peers recently,” the report read.
“The trajectory of the loss of pay indicator is one of the worst across the alternative consumer data we track,” Jefferies said. After further study, they found small businesses to be at the heart of the malaise, implying that “any degradation in overall economic health is likely [in the] early stages.”
Holiday purchasing “largely held up,” Jefferies said, although more-recent data suggested a reversion to previous trends. “On the discretionary side, we observed a similar, but much more substantial, swoon-then-recovery.” Allowing that it was still early to make conclusions, Jefferies nevertheless said expectations of an exceptionally happy holiday season could largely be erased.
With regard to spending on consumer staples, Jefferies summarized, “Although the data doesn’t scream optimism, there is little to suggest a recent breakdown from an economic-health perspective. Behavior across all three income cohorts remains on the prior trend.”
Holiday spending, however, was said to look bleak. High-single-digit contractions were observed from upper- and middle-income customers.
Politically, the least change in sentiment was amongst independent voters. Republicans had their feelings diminished the most, especially in the wake of the Venezuelan incursion. Uneducated consumers’ sentiments remained largely the same, with steep declines seen from well-educated members of the public.
