Despite the prognostications of CNBC talking head Dennis “Uncork the Cristal” Kneale, US consumers aren’t feeling all that positive about the health of the world’s largest economy.
As Bloomberg reported on Tuesday, emphasis FT Alphaville’s:
June 30 (Bloomberg) — Confidence among U.S. consumers slipped unexpectedly in June, reflecting a weak labor market and rising energy costs. The Conference Board’s sentiment index decreased to 49.3 from a revised 54.8 in May, the New York-based research group said today. The figure was still above a record low of 25.3 reached in February…
Economists forecast confidence would rise to 55.3 from 54.9 in the prior month, according to the median of 70 forecasts in a Bloomberg News survey. Estimates ranged from 51.5 to 60.
This is a striking contrast to the May number, which clocked in at a (revised) 54.8, well above the expected 42. Equity markets rather obligingly fell in the aftermath of the release.
As such, it is well worth pointing to a John Authers’ Short View column on the topic last month, in which he noted:
Over the years, confidence has correlated well with the stock market. They peaked together in 2000 and troughed together in 2003. It is natural for the two to go together.
But is this an example of what George Soros calls “reflexivity” – the tendency for markets to influence perceptions of reality, which in turn feed back into markets? After their abject terror late last year, US consumers have seen the stock market rising for two months. Maybe this caused their confidence to rebound.
There are other reasons to fear yesterday’s reaction was overdone. The headline number is because of expectations (up to 72.3) rather than current conditions (still at 28.9). This is still too low to predict the end of the recession: Capital Economics of London shows that future expectations average 87 at the point when recessions end. It says these numbers point to a growth in consumption of only 1 per cent in the next year.
Best put away the champagne glasses, then.
Related links:
Deficit forces California to issue IOUs – FT
US incomes – Lex
Summer looks like a washout for some retailers – BusinessWeek