The data keeps coming, and its getting harder for the perma-bulls to rationalize the information. Earlier in the month, University of Michigan Consumer Confidence plummeted the lowest level since last October; the blame went to "Terrorism fears and higher gasoline prices;"
Since that August 18 report, gas prices have dropped significantly.
This morning, it was the Conference Board’s turn to release their data — and their confidence index dropped the most since last September post-Hurricane Katrina. Blame for the drop this time went to "Weak Housing and the War in Iraq, and Employment."
I have a different theory: Consumer Confidence is weak due to no real wage gains for more than 2 years; It is not Housing per se, but rather, the inability to extract equity via HELOCs that are to blame for the poor confidence showing.
Even the reconstituted Leading Economic Indicators have continued to weaken:
LEIs, Year-over-Year percentage change, 3 years
Indeed, when we look at the prime driver of this cycle’s inflation — commodity demand — is starting to cool off. Spurred by weakness in oil, the Reuters/Jeffries CRB index is testing key 5-year uptrend.
5 Year Chart — Commodities
Source: Michael Panzner, Collins Stewart
One possible interpretation of that is the commodities market is anticipating cooling demand — from the decrease in New Home construction, the slowing of the broader US economy, even a lessening of US purchases of goods made in China.
This is a chart worth watching over the short term as it could be the canary in the coal mine . . .
Consumer Confidence Tumbles
MICHAEL S. DERBY
WSJ, August 29, 2006 10:18 a.m.
U.S. Economy: Consumer Confidence Declines to Nine-Month Low
Bloomberg, Aug. 29, 2006