Consumer angst despite a strong labor market

The deluge of geopolitical headlines continued last week, though markets remained broadly resilient. US stocks continued their ascent as strong corporate earnings offset many of the prevailing concerns. Treasury yields ended the week little changed, though not without some volatility that briefly sent the 30-year Treasury yield back to the 5% level again.

Labor market data was modestly encouraging The US added 115,000 jobs last month, down from 185,000 in the prior month, but still above expectations and in positive territory. Healthcare continued to lead growth, while IT and financial services shed jobs again. The unemployment rate remained at a low 4.3%. Overall, the labor market appears stable, even if somewhat uninspiring, and is likely enough to keep the Federal Reserve on hold as it analyzes the economic impact of the Middle East conflict.

Corporate earnings have been strong overall, yet numerous CEOs, particularly in discretionary sectors, have warned of growing consumer anxieties. Many are seeing customers trading down to lower-cost products or foregoing activities entirely, such as dining out. With average gasoline prices above $4.50 per gallon, it’s not surprising to see households reallocate spending.

The latest consumer sentiment data from the University of Michigan confirms this angst as last week’s reading of 48.2 marked the lowest level on record. Consumers appear to be bracing for stickier inflation levels, especially as energy supply disruptions are likely to last beyond the end of the conflict.