Tuesday, May 26, 2009

Consumer Hope?

Wow - N. Korea tests a nuclear weapon, housing prices plummet to record lows and then wham - consumer confidence soars and the markets resume rally mode.

Unfortunately, as we seen with most of the "getting worse, just more slowly" news stories, the soaring consumer confidence was driven entirely by consumers "expectations" that things will improve. In fact, the present conditions component of the survey barely budged and remained at a dismal 28.9. The expectations component of the survey surged to a whopping 72.3, it's highest level since December 2007. Hmmm, let's try to remember way back then....... the Dow was at 13,625 and consumers were expecting very good times ahead. How exactly did that play out?

Again, this data set can be self-fulfilling - strong stocks drive confidence which drives stocks which drive confidence, etc... - and we could get more data like this during the week with housing data. Housing remains in the dumps, but the housing data counts a foreclosure sale the same as a traditional sale so the data could continue to fool the market.

Without a change in the trend in jobs, we're just hitting bumps on our way lower...

Consumer Confidence or Consumer Hope?

They call it "consumer confidence," but the numbers released Tuesday by the Conference Board might better be pegged as "consumer hope."

"There's a big difference, namely that confidence translates into spending, while hope is just a good feeling.

The Conference Board's measure of consumer confidence was up 35% from April, the fourth-largest jump in the 32-year history of the index. The move left consumer confidence in positive territory at 54.9, the highest it has been in eight months. The gain was far bigger than economists expected.

Consider that there was a big increase in the percentage of consumers expecting the economy to generate new jobs, despite no evidence that the current economy can actually achieve that.
Consumers ignore possible problems when they are feeling good, but the true measure of consumer confidence ultimately is reflected in consumer spending. Any positive move in confidence now won't be reflected in those numbers until late summer. "


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Someone wittier than myself said that visiting www.usdebtclock.org was like financial water boarding for the fiscally sane. The numbers are all pretty numbing, but consider that last April our total debt was $9.2 trillion - we've added $2.1 TRILLION to our debt load in the last 13 months. 18.6% of the entire debt that our nation has assumed in our 240+ years history has been lumped on our balance sheet in the past 13 months!!! I'm sure that will end well.

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