Friday, November 13, 2009

Consumer sentiment dips

Apparently, I'm one of the few that could see this coming. Unemployment is surging and somehow confidence was expected to ratchet up again this month? People are still spending but there appears to be a shift in psychology and people seem to feel almost guilty opening up their wallets.

"The sentiment index (reported at 66) was forecast to rise to 71, according to the median of 69 economists surveyed by Bloomberg. Estimates ranged from 67.5 to 75. During the expansion that began in late 2001 and ended in December 2007, the index averaged 89.2."

It really is embarrassing for the economists to all miss this badly. 69 economists provide a forecast and not one of them can get the number right. Every forecast was off by 2% - 12%. That's just terrible.

The trade deficit was also surprisingly large (how do you not notice that oil prices were going to impact trade deficit?) as oil and auto imports offset higher exports. In general, I think both of these figures signal a modest boost of the economy but it is likely inventory restocking. Also, note that a higher trade deficit will eat into the final GDP numbers when they are revised.

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I've said for some time that there is a consensus building around another stimulus package next year. Much like the last stimulus package, I think this money will go toward saving more jobs than creating new jobs. This is the dilemma facing the a country that becomes a stimulus addict: once you get a hit off that pipe, it's hard to go back to living life clean, sober and debt free.

I could see a scenario where we pullback on our military commitments in 2010-11 in order to fund stimulus part 2 and maybe part 3. We'll see if it plays out that way.

As a reminder, note how weak mortgage applications were yesterday. When the government stops (or threatens to stop) propping up an industry with incentives and tax breaks, business slows to a crawl again. The cash for clunker style programs continue to be very ineffective at creating a sustained long term recovery.

Cheers!

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