Tariffs Worry Consumers, But Businesses Are Optimistic

Treasury yields climb without a clear catalyst. Despite weaker-than-expected consumer confidence and a decline in durable goods orders, U.S. Treasury yields rose across the curve today to kick-off a holiday shortened week. The 2-year yield closed 3 bps higher at ~4.34%, while the 10-year yield rose ~6 bps to end the day at ~4.59%, its highest level since late May. Equities initially fell after today’s consumer confidence data, but a surge in mega-cap technology stocks led a reversal that saw the NASDAQ and S&P 500 end the day ~1.0% and ~0.7%, higher, respectively.

Political uncertainty weighs on consumer confidence. For the first time in three months, consumer confidence fell in December per Conference Board data released today. The overall confidence index fell to 104.7, below expectations of a slight increase to 113.2 vs. last month’s 112.8 upwardly revised results. The decline was driven by concerns about proposed trade tariffs, an interesting twist given last month’s confidence surge was largely attributed to enthusiasm over the presidential election outcome. 46% of respondents in this month’s survey expected tariffs to raise the cost of living, and some respondents reported frontloading larger purchases in anticipation of higher prices next year.

Business equipment orders surge. Headline durable goods orders fell 1.1% in November vs. expectations of a 0.3% contraction; however, the decline was largely due to a pullback in typically volatile commercial aircraft orders. More encouragingly, a subset of orders for U.S. capital goods manufactured in the U.S. excluding the volatile aircraft segment, called core capital goods orders, grew by 0.7% vs. expectations of a 0.1% advance. The figure is a closely watched measure of corporate investment and showed that businesses were more confident about making longer-term investments in productivity given less political uncertainty, a positive for economic growth.