Consumer Sentiment Improves, but Stays Below Pre-War Levels
The latest survey from the University of Michigan shows that consumers are feeling better about the economy, driven largely by relief at the gas pump. Sentiment has picked up from its recent record lows as inflation expectations ease and gas prices come down.
However, economists caution that this improvement falls short of an "all clear" signal. Despite the rebound, sentiment remains 13% below the February reading — the level recorded before the Iran war. So while the direction is encouraging, the overall mood is still meaningfully depressed relative to earlier in the year.
A New Source of Inflation: Memory Prices
Just as some price pressures are easing, a fresh concern is emerging for US consumers: technology-related prices, specifically memory costs. Markets are increasingly waking up to what amounts to a new inflation in town. This came into focus after Apple announced it would raise prices because of rising memory costs.
This is significant because it represents inflation flowing through a consumer-facing channel that is distinct from the energy prices that have been providing relief. Even as gas prices fall, the cost of the chips inside everyday devices is climbing.
Apple, the Supply Crunch, and the China Alternative
Reports now suggest that Apple may be considering Chinese memory makers as a response to the supply crunch and soaring prices. This points to a broader dynamic in which US technology firms are beginning to view China as a possible, viable, and cheaper alternative supplier.
The key facts behind this consideration:
- Pricing advantage: Chinese DRAM is typically priced 10 to 20% below that of competitors, making it an attractive option amid surging global memory costs.
- Limited but growing influence: Chinese DRAM makers are still too small to set global prices. However, their expansion can shift the supply-demand balance and soften prices over time, even if they aren't price-setters today.
- Obstacles to adoption: There are likely geopolitical hurdles around working with Chinese suppliers. Beyond politics, switching suppliers is not something that happens overnight — picking up a new supplier is a slow process regardless of the commercial appeal.
Taken together, the situation illustrates how China is increasingly being weighed by US tech firms as a cheaper alternative, even as the practical and political frictions remain real.
The Week Ahead
Looking forward, the coming week will be a shortened trading week with relatively few data and earnings releases. As a result, trading volumes could be thinner than usual, and investors are likely to keep a close eye on geopolitical developments.
Central bank watch: Kevin Warsh will appear at Sintra in Portugal — Europe's version of the Jackson Hole symposium. However, he has made it clear where he stands on giving forward guidance, so there may not be much new to glean from his remarks.
Economic data: On the data front, PMI readings are due from both the US and China.
Earnings — Nike: Nike is also set to report, and it comes in for some criticism. Its turnaround strategy is taking longer than expected, and there are uncertainties surrounding its China business. Adding to the pressure, Nike received a downgrade from KeyBanc. These are points worth monitoring as the company reports into a quieter, lower-volume week.
