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What Does Consumer Sentiment Mean In Terms of Recession

Tuesday, May 20, 2008 | 12:30 PM

Hmmm, we seem to be tangentially looking at a lot of sentiment data today. Let's stop beating around the bush, and look at the most recent sentiment data. From last week's University of Michigan we learn that U.S. Consumer Sentiment dropped to 28-year low.

That's right, we are back to sentiment malaise levels pre-Reagan.

Peter Boockvar of Miller Tabak notes:

The April preliminary U of Michigan confidence # fell to 59.5, the lowest since June 1980. Present conditions fell to 71.7 from 77 and the Outlook fell to 51.7 from 53.3. One year inflation expectations rose to 5.2% from 4.8%, the highest since 1982. Message to the Fed, inflation expectations are not 'well anchored' and price stability is in danger the longer people believe inflation is going higher as it feeds on itself.

The key though is whether employees start asking for raises to deal with higher prices (fed the inflation in the '70s) but with a softening labor market, their leverage is limited thus furthering the pressure on after inflation wages. The implied inflation rate in the 10 yr TIPS is at 2.471%, a touch less than 2 month highs reached on Wednesday of 2.474%.

Does the freefall in consumer sentiment suggest anything in terms of our earlier question: Are we in a recession or not? What might that mean in terms of economic activity in the near future?

I am not sure, but this chart, via Michael Panzner, might help us determine what the most likely course:

Chart courtesy of Michael Panzner

Good stuff -- thanks Mike.

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Comments

I find it very interesting that Goldman came out with a "conviction buy" rating on Amazon today:

http://www.bloomberg.com/apps/news?pid=20601110&sid=afILpBARBv.g

While at the same time, they are on record predicting oil at $150 - $200 per barrel this year.

It seems to me that these two predictions are mutually exclusive - I am not buying the fairy tale that we don't drive to the mall anymore so we will start buying everything from Amazon.

Since it's understood that GS "talks its book", but also understood that they shorted subprime while recommending it to their clients, I'm curious if they are "talking their book" long, with oil, and ramping up Amazon to unload it before it cuts in half.

Ski-slope drops in consumer sentiment and self-professed $200 oil targets have never led me to a "convicted buy" of a retailer that only sells non-essentials...

Comments ?

Posted by: skeptical | May 19, 2008 11:58:03 AM

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