CONSUMER CONFIDENCE - WHERE IS THE PULSE OF THE CONSUMER AND THE ECONOMY?

Today's headline Conference Board consumer confidence index number declined to 48.5 from 53.2 last month.  The median estimate from Bloomberg was for a decline to 52.1.  This now puts the confidence index down 14% year-to-date.  The real story lies in the present situations Index which is only up 14% from the low set back in December 2009.  Confidence is critical for the U.S. economy and it is clear that the government stimulus has been lackluster, at best, in boosting the outlook of consumers in America.

In fact, there is considerable evidence to suggest that the spending could be worsening people’s confidence.  A pool released by Public Notice today suggests that 71% of people say government spending is too high and, more importantly, 68% say government spending is a factor in their own financial situation.  Consumption accounts for roughly 70% of GDP; restoring some semblance of confidence will be necessary to encourage real economic growth.

The Richmond Fed manufacturing survey fell to -2 from expectations of +5.  In total, 7 out of 8 Richmond Fed indicators declined, with just vendor lead-time remaining flat at 0.  The new orders index fell to 0 this month from 10 in September and shipments index fell to -4 from 11. The Richmond Fed’s district accounts for about 9.1% of the nation’s gross domestic product.

This morning, Hedgeye Financials sector head Josh Steiner’s read on the Case/Shiller numbers was not good.  His conclusion: “Home prices are just starting to roll, but downside will accelerate in coming months. We expect next month's number to be a wake-up call and the month after that to be a significant negative catalyst for the market generally and Financials specifically.”

In response to these data points, the VIX is up 1%, Gold is spiking up 8% and the dollar is down 0.4% (down 5% for the month).  The S&P is basically unchanged. 

The consumer is far from a picture of health, home prices are headed lower, the economy is decelerating and the S&P 500 is up 3.7% year-to-date.  The outlooks certainly seems decidedly bearish, but apparently two “big” boys think otherwise.

  • David Tepper said on CNBC yesterday that stocks are in a win-win situation.
  • From Zerohedge - “John Paulson Lecture: Bonds Are Wrong, Stocks Are Right"

The first day of the 4th quarter is setting up to be an ominous day, with the ISM manufacturing index to be reported.  The August reading of 56.3 posted a big upside surprise versus 52.8 expectations and setting off a 9% rally in the S&P 500.  Since then Factory orders, ISM non-manufacturing, Empire Manufacturing, Philadelphia Fed, Chicago Fed and the Dallas Fed have all reported disappointing numbers relative to expectations.  All of the regional FED readings, except the Empire State manufacturing reading, are showing numbers that imply economic contraction, not expansion.


A reading below 50 on the ISM is in play for the first day of October.

Howard Penney

Managing Director

CONSUMER CONFIDENCE - WHERE IS THE PULSE OF THE CONSUMER AND THE ECONOMY? - conference board present situations

 

CONSUMER CONFIDENCE - WHERE IS THE PULSE OF THE CONSUMER AND THE ECONOMY? - conference board confidence

 

CONSUMER CONFIDENCE - WHERE IS THE PULSE OF THE CONSUMER AND THE ECONOMY? - conference board expectations