Mixed Confidence

A quick post before hitting the street (and musuems and outlet shops and Best Buy and . . . )

Two inopposite data points came out this week that are interesting in what thye reveal about both Consumer and Business Confidence, and how each of these groups will be spending in the coming weeks and months.

With gasoline now considerably under $3, we have seen consumer confidence move back up off of very low levels. U Michigan Consumer-sentiment index snapped back smartly to 81.6, from an ugly low of 74.2 in October. Note that the index is still well below July readings of 96.5. Fuel prices will be the key to consumer confidence for the next quarter; If they stay low, consumer confidence will crawl back. High energy costs — and those December bills arriving after Jan 1 may ding confidence again.

But the present uptick provides signs that the Xmas shopping season will see net gains — although not as robust as last year, IMO. There’s a nice assortment of comments here: Retail Ball: How Analysts Predict Holiday Retail Sales, including yours truly.

At the same time, Business Hiring and Capex Spending remains full of trepidation. In Europe, the situation is described as "fragile."

"Corporate confidence faltered in key areas of Europe this month, underscoring the fragility of economic conditions across the region.

A drop in Germany’s bellwether index reflected a darkening view of current business conditions and the outlook for the coming year. On Thursday, the Ifo institute said its business-sentiment index for November fell to 97.8 from 98.8 in October. Last month, a dramatic improvement in the survey data had been hailed as a harbinger of better things in store for euro-zone companies.

In Belgium, the central bank reported a sudden downturn in business confidence to -4.3 in November, after a gradual improvement over the previous three months. The survey is another litmus test of business confidence across the 12-nation euro zone owing to Belgium’s heavy dependence on exports."

We have seen that Europe — and the UK in particular — are about 6 months to a year ahead of us in the Business Cycle.

In Europe, too, we see signs that Consumer are spending far more resiliantly than their Business counterparts: "the euro-zone picture isn’t uniformly bleak, and there are signs that morale is rising among some consumers . . . Italy’s shoppers are at the forefront of the new optimism, as consumer confidence leapt this week to 108.8, a three-year high, from 105.6 in October. Statisticians said the trigger was a newfound faith in the economy, which emerged after a midyear recession."

I am watching for two things: 1) Will the Business community pick up any optimism at all in temrs of spending and hiring? B) Will the improved sentiment and economy in Italy spill over to the rest of Europe and/or the United States?

Keep watching . . .


Falling Gas Prices Help Perk Up Consumers’ Mood
THE WALL STREET JOURNAL, November 25, 2005; Page A5

Business confidence softens
Weak consumer spending dents index in Germany; Belgian gauge also drops
DOW JONES NEWSWIRES, November 25, 2005; Page A9

Retail Ball: How Analysts Predict Holiday Retail Sales
November 25, 2005

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What's been said:

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  1. andre haroche commented on Nov 25

    while i am shy on data to back up my statement, my gut tells me one implied indicator in the article – that UK/Europe is ahead of US cycle by 6 months or so – may be a false indicator. True UK is a head of US on the housing cycle — this is a fait a complis – though to say that all segments of the market and various cycles track to US and Europe is false. In particular, I believe the US consumer will be in for a bit more of a fall in confidence and spending over the coming few quarters ahead. this is counter to the trends we are seeing in Europe – and is the core of my point here on the lack of a strong correlation. Of course I could be wrong and we will really know in january-feb, when all retail data is in but for now: I suspect (a) softening housing market – which is just taking hold (nation wide) as we speak via price reductions, (b) incresed interest rate hikes, and raising 30y morgtage rate, (c) no substantial increases in personal income, (d) deeper debt levels of US consumer and (e) continued (mild) inflation pressures will make the consumer feel poorer and limit additional consumer credit – creating more of a headwind and slowly pulling back the (the service-based, consmer driven) US economy in 2006 and 2007.
    I have been told dont ever short the US consumer but going long just doesnt add up. Despite confidence growing, the US consumer just cant get blood from a stone (or more credit for that matter).

  2. Jack Yoest commented on Nov 25

    Laptop Loss Leader

    Today is Commerce Day, which is celebrated on the Friday following Thanksgiving Thursday. The day was instituted to satisfy pent-up demand that accumulated over the mid-week consumer diversion to Sam’s Club (for food-stuffs), away from Wal-Mart (for a…

  3. Colin commented on Nov 26

    I would read nothing into Germany’s fall in business sentiment. This is not due to economic factors that will hit us in six months, but their own abysmal political-economic situation. The grand coalition government is unlikely to enjoy a long lease on life and the nominally rightish government has already laid out plans to raise the VAT tax 3 points to a stunning 19%. I were a member of German industry I would have little reason for optimism either.

  4. Barry Ritholtz commented on Nov 26

    The larger issue of how much (or how little) Business spending is a global situation.

    There is only modest Corporate spending in the US (and modest hiring), and the situation in Europe appears similar.

    Asia is much more robust, and its being led by China.

    Knowing how much — or how little — businesses are willing to Capex Spend helps determine how far the business cycle — and the stock market — can run . . .

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