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As we previewed yesterday we thought consumer confidence in February would not live up to expectations….

The Reuters/University of Michigan preliminary consumer sentiment index dropped to 73.7 from January’s 74.4 reading and expectations of 75.0.  How can this be happening at a time when GDP is 5.7% in 4Q09 and the unemployment rate unexpectedly dropped in January?

Here is my list (feel free to add to it if I miss anything):

(1)    40% of American STRONGLY DISAPPROVE of the way President Obama is performing.

(2)    While the U.S. unemployment edged downward in January, consumers still appear a little wary about the labor pool.

(3)    Those with a job are worried about becoming laid off.

(4)    For most consumers paying down debt remains the priority.

(5)    Most consumers are focusing on needs over wants.

(6)    3, 4 and 5 suggest that most consumers are just not that comfortable with their financial standing.

(7)    The market’s decline at the end of January appears to have rattled investor confidence this month.

(8)    25-30% of consumers are underwater with their mortgages.

(9)    This winter sucks.

Ben Bernanke recently said the Federal Reserve will raise the discount rate “before long.”  With conventional mortgage rates around 5% and likely headed higher this could deflate very important assets on the consumer’s balance sheet.  It’s unlikely that current conditions are going to improve to a degree that we see any significant move to the upside in consumer confidence. 

Howard Penney
Managing Director

CONSUMER NO-CONFIDENCE - WHY! - michiganer