Consumer Sentiment Drops to 28 Year Low
Earlier this week, the Conference Board's Consumer Confidence data plunged to 16 year lows. The chart at right shows that over the past 5 years, sentiment readings have been rangebound. Despite the war(s), rising prices, weak job creation, Katrina, and an otherwise mediocre post recession recovery, Americans have remained not-all-that-gloomy.
That is, until recently.
The most recent peak in sentiment was January 2007, and since then, its been more or less straight down. 2008 saw the prior range broken, to record levels of unhappiness.
What gives? This must be perplexing to those who look at Inflation and Unemployment data without any context. The numbers seem relatively modest.
For a moment, forget all of the arguments about models and how the BLS measures things, and how thats changed over time. If we have full employment, where is the wage pressure? If Unemployment is so low, why is sentiment so negative? If inflation is contained, why the negative sentiment? Something here doesn't compute.
We learned today that consumer spending upwards by 0.8% in May. However, that appears to be primarily inflation driven consumption, fed by stimulus checks, and higher food and energy prices. Personal income also rose, gaining 1.9% from April.
The chart below, via Merrill Lynch's David Rosenberg, explains why: Real Personal Expenditures had moved up to a 5+% rate in the 1990s; Now, we are heading in the other direction. Annual changes in Real Personal Consumption is heading downwards. Its not the actual level, but the directional change that is negative. It seems to be following sentiment towards the zero line.
Consumers in uncharted waters
Source: Conference Board, Bureau of Economic Analysis, Merrill Lynch.
U.S. Michigan Consumer Sentiment Index Falls in June
Bloomberg, June 27 2008
Consumer Confidence Plummets
KELLY EVANS and ANTON TROIANOVSKI
June 25, 2008; Page A1
Consumers Wary Over Economy, Reports Indicate
MICHAEL M. GRYNBAUM
NYT, June 25, 2008
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i guess vaguely related...
i am pretty sure of my next major move. i want to stay long commodities as a hedge against the dollar (the small amount i made in oil was not worth it compared to the extra $100 a month it took to fill up my tank).
so maybe being long GLD and SLV in some combination, for maybe 60% of my "play assets"
on the "short" side, i am looking at some sort of short fund, im torn between qid and dug... or maybe both for the 40%.
anyone here want to sell me one way or another?
the DUG would be more of a pure hedge, and just looking at convergence, though it wouldnt back me as strongly as i'd like to be against the dollar.
the QID honestly scares the bejeezus out of me, and I don't have the guts to hold it for long.
informed commentary is welcome. I will let people here know what i decide at COB today.
Posted by: TheUnrepentantGunner | Jun 27, 2008 11:21:49 AM
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