See it and Sell it First at ASI Show Orlando – January 4-6, 2025.   Register Now.

October 02, 2018

Economy Watch: Consumer Sentiment Soars, Manufacturing Expands

Reports heralded the positive economic indicators for September 2018, but trade war, tariffs and rising prices are significant concerns.

By  Christopher Ruvo

A closely watched survey on U.S. consumer sentiment hit a high range in September achieved only two other times since 2004. Meanwhile, a separate study indicated that the rate of manufacturing growth in the U.S. slowed last month, but that the sector still expanded, despite worry over tariffs, escalating prices and finding enough employees to handle workloads. Such insights are relevant to the promotional products industry, which tends to trend the way of the broader economy.

The University of Michigan’s Index of Consumer Sentiment reached 100.1 in September, up more than 4% from August and 5.3% from the same month a year ago. The reading marked only the third time in 14 years that sentiment topped 100.

Richard Curtin, chief economist for the University of Michigan’s Surveys of Consumers, said that the September sentiment gain was significantly propelled by households with incomes in the bottom third, indicating that economic expansion has now benefitted nearly all financial subgroups. The study also found that inflation concerns among consumers were less than in August. The surveys showed that consumers expect continued growth in the U.S. economy, and believe the unemployment rate will continue to decline. Increases in the surveys Current Economic Conditions Index and Index of Consumer Expectations spoke to such beliefs:

Despite the good news, the primary issue that consumers felt could derail the economy is tariffs, said Curtin. “Concerns about the negative impact of tariffs were cited by nearly one-third of all consumers in September,” Curtin said. “Those that voiced negative views of tariffs also held much less favorable prospects for the economy and held inflation expectations that were 0.6 of a percentage point higher than those who didn't mention tariffs.”

According to Curtin, the pace of growth in real personal consumption expenditures can be expected to average 2.6% during late 2018 and into the first half of 2019.

In a different report, the Institute for Supply Management (ISM) said that its Purchasing Manager’s Index registered 59.8% in September. That was down from August’s 14-year high of 61.3%, but still well above the reading of 50 that indicates growth.

Of the 18 manufacturing industries, 15 reported growth in September. The only industry reporting contraction last month was Primary Metals. There was some cause for concern, though. The ISM’s New Orders Index was still strong in its reading of 61.8%, but was nonetheless down 3.3 percentage points from August. Also, raw material prices rose for the 31st consecutive month. The trade war with China and resulting tariffs were also fueling anxiety. Manufacturing executives “are again overwhelmingly concerned about tariff-related activity, including how reciprocal tariffs will impact company revenue and current manufacturing locations,” said Timothy R. Fiore, chair of ISM’s Manufacturing Business Survey Committee.

Some manufacturers were especially affected by tariffs.

“The market is in a state of chaos with the latest round of tariffs,” an executive in the computer and electronic products manufacturing industry told ISM. “As an electronics original equipment manufacturer, our component prices have been impacted almost across the board. The tariffs have caused a mass rush to buy up inventories of affected products in order to minimize the long-term financial impact. This, in turn, is causing market constraints, which further drive up the cost and increase lead times.”