Consumer confidence sinking

From Bloomberg:

Confidence among U.S. consumers unexpectedly dropped in November as the loss of jobs threatened to undermine the biggest part of the economy.

The Reuters/University of Michigan preliminary sentiment index decreased to a three-month low of 66 from 70.6 in October…

Rising joblessness puts the economy at risk of slipping into a vicious circle of firings and declines in consumer spending that will limit the emerging recovery.

I don’t pay as much attention to consumer confidence as I do to some other economic data because I have yet to see enough statistically significant correlations between confidence and future economic paths.  However, I do realize there is a connection having recently posited the following about a term I coined unemployment rate illusion:

behavior changes in accordance with the nominal numbers used as economic signposts in an economy…

The parallel of money illusion to unemployment rate illusion is that a higher posted rate of unemployment can have a serious negative impact on consumer confidence and personal consumption (think balance sheet recession). All else being equal, higher unemployment rates mean lower confidence and consumption…

  • If people see 12-13% in 2010, they will be floored, angry, and looking for someone to blame. As Democrats control Washington, they will get the lion’s share of the blame and lose big time in 2010.
  • Making matters worse, this is the kind of shock that causes people to put their checkbooks away and go home for the night a.k.a sending us into a double dip recession.

So I am concerned that we are going to se a relapse. (Note: I have moved from seeing a double dip recession as a 1/3 chance to a base case scenario). My optimism about recovery is now fading.

Unfortunately, similar downbeat confidence numbers are also coming from the Conference Board index which unexpectedly fell in October:

The Consumer Confidence Index, released by The Conference Board, sank unexpectedly to 47.7 in October — its second-lowest reading since May.

Forecasters predicted a higher reading of 53.1. A reading above 90 means the economy is on solid footing. Above 100 signals strong growth.

The index has seesawed since reaching a historic low of 25.3 in February and climbed to 53.4 in September.

The connection to markets comes again via David Rosenberg from this past October 29th who I seem to be quoting a lot recently. In reference to the Conference Board numbers, Rosenberg said (highlighting added):

So many people are deluding themselves that we have some sort of durable recovery on our hands and yet consumer confidence, at 47.7 in October, is unbelievable — the lowest this every got in the 2001 recession, which included the 9-11 terrorist attacks, was 84.9. Think about that for a second. If the equity market is catching on to the view that we could be in for some slowing in the data, then a significant correction after a 60% surge is very likely. This is a time to be raising cash if you haven’t done so already — valuation, technicals, fund flows and fundamentals at this juncture are all near-term obstacles.

  1. Anonymous says

    Do you have a target time frame for a double dip to begin?

    1. Edward Harrison says

      Like John Mauldin in a post from yesterfay I see 2010 benefitting from
      stimulus not yet in the pipeline. So late 2010 would be the earliest.
      Probably 2011 more likely.

      1. Anonymous says


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