Consumer sentiment ‘doesn’t really track consumer spending,’ economist says

Robertson Stephens Wealth Management Chief Economist Jeanette Garretty joins Yahoo Finance Live to weigh in on the latest UMich consumer sentiment data, the crypto market sell-off, and inflation.

Video Transcript

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AKIKO FUJITA: Let's keep that conversation going on that crypto bloodbath that we've been seeing, along with the broader markets. We've got Jeanette Garretty, Robertson Stephens Wealth Management Chief Economist.

Jeanette, good to talk to you today. Let's start on that crypto space. I mean, obviously we've been talking about the moves in terms of pricing for Bitcoin, Ether, all the major currencies there. But what are the concerns right now, broadly when you look at the markets in terms of a potential contagion effect?

JEANETTE GARRETTY: Yeah, you know, I think people have been looking at that for a long time actually in a lot of ways, even though the FTX story is huge, to say the least, right now. I think the real message here, it's a continuation of the story that's been playing out, you know, for a number of months, the problems in the sector. So people have been looking at that risk of contagion.

There is a lot of separation between the crypto market and let's say the conventional financial services system. Not too worried about that. There is some speculation that some market movements that we've seen even this week, may be related to margin calls that are, you know, indirectly associated with what's going on in crypto space and with FTX.

So you don't have something this big happen without there being some consequences. But I-- but I do think that by and large, there's not huge risks out there, except to the poor people who are sitting there looking at a bankruptcy, and where is my money?

AKIKO FUJITA: Yeah, and certainly, there's a lot of people out there who are saying, well, why did I put my money here? Jeanette, you know, Ines was just talking about what a choppy week it has been. We kind of started the week with a big rally, the expectation that potentially the Republicans would take control of Congress. Things still up in the air there.

But on the economic front, a bit of a mixed bag in terms of data. You know, we obviously saw the markets rally on the back of the weaker-than-expected CPI print. But also consumer sentiment hitting the lowest level that we've seen since June. How do you square those two?

JEANETTE GARRETTY: Yeah, that was-- yeah, that was a big print this morning. Keep in mind, consumer sentiment, those of us who are economists laugh a bit about it because, you know, we know-- we get enough slack thrown our way about our ability to predict what is gonna happen. And now, you're turning to, you know, why assume everybody else is any better at this? I'll put it this way.

Consumer sentiment doesn't really track consumer spending as much as you would think because what really drives it is income. And so underlying this is a concept of real income, right? There are jobs. There is wage growth. But inflation is taking its toll. And I think that's what's crept in here.

The most notable thing for me on the consumer sentiment survey was the big drop that was indicated in intentions to purchase durable goods. And that's consistent with the inflation report yesterday that showed significant weakening in durable goods' prices. Service sector prices are still holding up there.

So I think-- I think, you know the Michigan survey tells us something important here this morning. I do think it is consistent with everything else we're seeing, of an economy that is changing but not collapsing in any way, shape, or form.

AKIKO FUJITA: Yeah, and despite some of the optimism that came through that potentially we'd reached peak inflation on the back of the CPI print, we had a number of Fed officials who came out and said, yes, this is a good sign. But it's just one data set that the Fed's trajectory doesn't necessarily change. What do you think--

JEANETTE GARRETTY: Yeah, I--

AKIKO FUJITA: --it means--

JEANETTE GARRETTY: I'm not-- I'm not in the camp of people who said-- who immediately said, oh, that's it, you know, no more 75 basis points, and this is peak, and here we are.

It is notable that there are some Fed presidents sort of counseling that we might-- they might be near a breathing point. I guess that's notable. But I just don't see it firmly yet. Because although the inflation numbers were very well received, inflation is still high.

And I just think Chairman Powell is going to drive the discussion towards, well, look, if the economy is OK, and we're generating job growth, and there's still consumer spending, and we're not in a recession, but we still have too high inflation, let's just kind of keep this going. Even if it's a 50 basis point move in December, that's still gonna push rates up significantly.