What Does Consumer Sentiment Mean In Terms of Recession
That's right, we are back to sentiment malaise levels pre-Reagan.
Peter Boockvar of Miller Tabak notes:
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?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%.
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.
Tuesday, May 20, 2008 | 12:30 PM | Permalink
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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
Its difficult to comprehend statistics that measure consumer sentiment in the context of time. What does it mean that consumer sentiment is lower than the year 2000, 1990, or 1980. Is there an inflationary effect to consumer confidence that I am not aware? Should we expect a 2-3% increase in consumer confidence per year b/c the fed is creating consumer confidence similar to the money supply?
Posted by: johnnyvee | May 19, 2008 12:02:04 PM
Johnnyvee,
Consumer sentiment is the equivalent of CHANGES in real consumer spending. So inflation does not enter the equation.
Posted by: ReturnFreeRisk | May 20, 2008 12:42:37 PM
There's an error in the recession labeling on Panzner's chart. There were "double-dip" recessions in 1980 and 1981-1982, respectively. But the second dip isn't shown.
As stated before, I would have identified a "double-dip" in 2002-2003 as well. You can see on the chart where consumer confidence printed a lower low in early 2003, as GDP took a fresh dip.
If it weren't for the absurd official lies about inflation, we would already have had a negative-growth quarter in 1Q 2008, with a second one underway now.
Posted by: Jim Haygood | May 20, 2008 1:37:19 PM
That chart looks pretty convincing that we are probably in the midst of an official recession now. We won't know if we're in a recession until October and may know we're not in one in August if 2Q GDP growth isn't neagative.
Posted by: Charlie | May 20, 2008 1:47:48 PM
One reason consumer sentiment may be so low is that employees know perfectly well their leverage to "ask" (beg?) for higher wages is very low. No wage price spiral here: just a price spiral. Thanks to all our free market friends!
Posted by: lark | May 20, 2008 1:56:41 PM
I’m not familiar with all the details on how the UM Sentiment report is built but it seems to me that today’s numbers though similar with those of the late 70's early 80's are not equivalent at all. I'm sorry but economic times back in the late 70's was the pits compared to current times. I personally think we have just become soft, lazy and content with good times over the last 25 years.
Posted by: Formerly known as... | May 20, 2008 2:00:29 PM
28 Years ago the inflation rate was around 13%. I believe that consumer sentiment is directly proportional to consumer buying power AND job security (what job security?). People get it no matter how much Orwellian cognitive dissonance the media thows at us.
Posted by: AGG | May 20, 2008 2:09:30 PM
ReturnFreeRisk
Thanks, but I was was just being sarcastic. What I was trying to state by sarcasim is that today's sentiment numbers when compared to other time periods, to have an relevance, need to be put in context with the economic troubles today compared to then. Otherwise, its hard to determine the point the writer is trying to make.
Posted by: johnnyvee | May 20, 2008 2:25:57 PM
It seems to me that the pre-Reagan malaise was followed from moments that were politically depressing. I think that my point here is that people have not attributed the current mayhem (aka - low cons. confidence, high crude, lingering inflation, etc) to a crisis of leadership. Read this interesting article, maybe some might be interested.
http://www.cfapubs.org/doi/abs/10.2469/cfm.v19.n3.9
Basically, it states the necessity of understanding the onnection between the behavioral traits and the bottom line performance of CEOs. I think that it applies to leaders in general. So, on that account, it is obvious that we have a 28y low consumer sentiment. The entire system is in crisis. Depending on the way the elections are conducted for the remainder of 2008 - maybe we are able to begin 2009 with some true leadership that is going to instill confidence into the system and stimulate indicators such as consumer confidence.
Posted by: JonSpence | May 20, 2008 2:40:23 PM
gee, I wonder why there was a big drop off in consumer sentiment in 04 without a similar change in gdp? why the disconnect? was something going on in 04? hmmmmm
Posted by: pkut | May 20, 2008 5:59:38 PM
Pre-Reagan? Don't you *really* mean "Carter-era"?
C'mon Barry, go ahead and put Bush II and Carter in the same sentence! ;)
~~~
BR": Pre-Reagan. He was the pres who returned sentiment back to normal . . .
He followed the 1970s malaise that was part Nixon (Vietnam and Watergate), part Carter (stagflation).
Posted by: IdahoSpud | May 20, 2008 8:40:44 PM
