This survey confirms the results from the UMich consumer sentiment survey released Friday with both indices plummeting. The only question regarding this data is whether this month’s plunge in the index is attributable mostly to the shutdown or to rising rates and the ongoing weak labor market. In my opinion, the index is at or close to its recovery peak, and consumers will increase their caution in the coming months.
This index is an excellent leading indicator of economic growth, and the increase in small business lending will surely boost economic growth in the coming quarter. That’s the good news.
The bad news twofold. First, in the chart above, observe how small business lending has yet to recover to its pre-New Normal high. Second, growth in this sector is grinding to a halt. The present trend is on the right. As to where it leads, look at the arrow on the left and see for yourself.
The PBOC is attempting to manage China’s money supply first through jawboning backed with action. China is trying to liberalize its financial system and allowing more rates to float is part of this policy. It seems that whenever the seven day repo rate approaches 5%, the PBOC injects liquidity into the system via reverse repos. As long as the world’s printapalooza continues, the PBOC will be unable to let these rates float and will be forced to continue injecting yuan into the sytem on a regular basis.