Confidence among U.S. consumers fell
in the month of June to the lowest level in 28 years. The culprits are record-high energy costs and rising joblessness.
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.
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Consumers in uncharted waters
Source: Conference Board, Bureau of Economic Analysis, Merrill Lynch.
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Sources:
U.S. Michigan Consumer Sentiment Index Falls in June
Bob Willis
Bloomberg, June 27 2008
http://www.bloomberg.com/apps/news?pid=20601068&sid=a0Ta5iRjGUAg&
Consumer Confidence Plummets
KELLY EVANS and ANTON TROIANOVSKI
June 25, 2008; Page A1
http://online.wsj.com/article/SB121431191157999655.html
Consumers Wary Over Economy, Reports Indicate
MICHAEL M. GRYNBAUM
NYT, June 25, 2008
http://www.nytimes.com/2008/06/25/business/25econ.html
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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.
Let’s hope for the rally and enjoy the ride. The feelin must be great.
A different question: does the consumer sentiment barometer actually mean anything?
From a different angle: it takes a couple of years of “full” employment before real wages start to move. We didn’t come anywhere close to that. And if you look at potential GDP vs. actual GDP, this recovery never made it back to potential–the first one in postwar history. Actual GDP is now short of potential GDP by about the same gap as the depths of the 1991 recession.
Maybe people realize what a crappy, short-lived recovery it was, based only on the shell game of the housing bubble. Maybe they are looking at all that debt and thinking, uh oh.
No problem. Once that overfed worker starts walking to work, car-pooling, and eating cheaper and healthier food, he’ll fit in that “wage cage” just fine.
“… AG Lafley, chairman and chief executive of Procter & Gamble, told the Financial Times he was concerned by the “woe is me and ain’t it awful” rhetoric adopted by Hillary Clinton and Mr Obama.”
It’s Clinton’s fault… and Barack Hussein Obama’s fault, obviously. If only we’d cut taxes further and start listening more to Dennis Kneale.
Reject the naysayers, listen to the positive people and become a ‘Knealer’
“Something here doesn’t compute.” It’s gov’t statistics that don’t compute. The person on the street has no trouble discerning that his personal expenses are rising at near double-digit rates, and that jobs are scarcer.
BUT — on a day when crude oil hits a fresh record, and gov’t announces that ‘core PCE’ rose +0.1% — first you just want to laugh, while making rude hand gestures near your crotch.
Then you want to punch some ‘analyst’ in the mouth. Evil clowns! If they were doctors, or lawyers, or accountants, they would be stripped of their professional credentials for malpractice.
“… AG Lafley, chairman and chief executive of Procter & Gamble, told the Financial Times he was concerned by the “woe is me and ain’t it awful” rhetoric adopted by Hillary Clinton and Mr Obama.”
This is another one of those GE jerks taht thinks they know every ting. If I made 25-30 Mil a year I would think things looked pretty good too. Unfortunately for this asshat he needs to explain to his employee Mr Harrison, that things are great and to quit reading the media and blogs.
“Oil costs force P&G to rethink supply network
By Jonathan Birchall and Elizabeth Rigby in Cincinnati
Published: June 26 2008 23:33 | Last updated: June 26 2008 23:33
Soaring energy prices are forcing Procter & Gamble to rethink how it distributes its products, with the world’s biggest consumer goods company shifting manufacturing sites closer to consumers to cut its transport bill.
Keith Harrison, head of global supply at P&G, the maker of Tide detergent, Crest toothpaste and Pampers, said the era of high oil prices was forcing P&G to change.”
http://www.ft.com/cms/s/0/314b9b86-439e-11dd-842e-0000779fd2ac.html
Jim,
That is a significant part of the problem.
Once all the data is spun, nobody REALLY KNOWS what the heck is REALLY going on.
That guy on Main Street is a whole lot closer to reality than the guys pulling their hair out trying to back into how in the hell some of these figures could have even been arrived at under the current circumstances.
The data is shit. We are ALL flying blind; because you can’t believe what you hear and you can’t believe what you see or read.
So, in a time when financial assets and the interaction between them has never been more complex, we have nothing to guide us in making any kind of informed decision about our investing. It has been reduced to grabbing your ass with both hands and holding on. I no longer invest that way. I learned my lesson in 2000-2002. I got burned and I got learned.
I like the action in the stock market–we are not seeing a VIX spike, but it kind of feels like we are reaching critical mass for piling on one side of the stock market and commodities, both from a sentiment and actual trading standpoint. The real question is–can we keep from capsizing?????
Paul in NYC is right: overeating looks like the root of the problem.
BR – great cartoon find…it’s like densly packed chart porn.
Paul in NYC – Wage Cage….take a bow, dude. LOL.
All that wage cage needs added is a tube running from his behind directly into his mouth, labelled “ACME currency peg food delivery system”. Stand back…he’s either gonna puke (deflation) or ‘splode (inflation)….
…the Fed thinks things can keep going, if only he would down a bottle of Pepto and some laxitives.
interesting that i haven’t seen anything on this topic from the associated press today – have read reuters and the news sources linked in this post – but not so much from the pro-iraq war cheerleading, chimp / shooter administration coverup leader and relentless everything economy related is coming up roses associated propaganda, er, press.
wonder why ?
I ran into a friend whose boss called to inform her that she would be making 5,000. less a year due to a change in pay structure. She asked when this was going to take effect and he told her tomorrow’s paycheck. She had already spent the money she thought she was going to receive on a car repair….f*$% Her! If only she ate less (at 57 she is a size 6)!!!
“she had already spent the money she thought she was going to receive…”
That is an inadvertent summary of our nation wide problem.
I chalk up crummy consumer confidence to the negative wealth effect driven by sliding home values.
Most ordinary folks, i.e. folks with little savings, smallish 401k balances, large credit card debt, HELOCs, etc , regard their home equity as their “savings”, their “retirement plan”, their wealth. And that’s shrinking, if not flat out evaporating. And everytime they drive by a gas station or go to the supermarket, they just get slammed again.
I’m thinking the final nail in the coffin will be rising unemployment as companies hunker down. In the meantime, the quibbling over data points and their accuracy is a luxury that we, who are well above the economic median, can pursue at our leisure.
“Once all the data is spun, nobody REALLY KNOWS what the heck is REALLY going on.”
That is a no kidding, but even beyond that the FED openly admits they don’t care about prices until wages are impacted.
Putting the workers in the WAge CAGE is not a problem.
According to the FED the “…relative price differentials…” isn’t a problem until it bleeds over into wage increases to keep up with the price differences. In other words the FED gives a damn about anything until the relative price differentials start impacting wages. Screw the workers let them compete with China/Mexico/Pakistan etc etc etc. Wage arbitrage is OK as long as it just the working folks and the working folks purchasing power keeps dropping.
Here are some brilliant comments by President of the Federal Reserve Bank of Cleveland Pianalto
“Oil prices have ratcheted up over the past nine years and the dollar has depreciated more than six years. Nevertheless, as long as a central bank is not creating an excessive amount of money, these relative price pressures ought to be transitory
As consumers spend more money for higher-priced petroleum and agricultural goods they have less money to spend on other goods and services. Other relative prices must then fall.
While sometimes devastating, these global relative-price pressures are not the same thing as inflation” Pianalto
Let’s see what would a proper response be, maybe along the lines of LET THEM EAT CAKE.
The FED could care less that prices are going nuts, eventually everyone will be too poor to buy anything and POOF no more inflation. What a deal, what a country.
Unbelievable.
What is going to happen to the folks such as consultants, architects, contractors, salespeople (on commission) who use their credit cards to get them from paycheck to paycheck (my brother-in-law falls into one of the above categories) who are now getting their credit card limits reduced, even if they have been paying their bills on time. This new policy is going to hammer the economy.