Friday, August 26, 2011

USA Consumer Sentiment Plunges to Recession Levels! (Charts) *Gloomy outlook lowest since 2008 and 1980*


Thomson Reuters/University of Michigan
USA Consumer Sentiment

Index of Consumer Sentiment, University of Michigan, Ann Arbor, August 26, 2011 U.S. consumer sentiment sank in August as consumers lost confidence in lawmakers' ability to stave off the threat of another recession, a survey released on Friday showed. The Thomson Reuters/University of Michigan's consumer sentiment index edged up from its mid-August level but was still consistent with recession-era lows. The index has only been lower in three other surveys, which were taken in April and May 1980 and November 2008. The final August reading on the overall index of consumer sentiment was at 55.7, down from 63.7 the month before. It was slightly better than August's preliminary reading of 54.9, which had been the lowest level since May 1980.

Commenting on the Survey Surveys of Consumers Chief Economist, Richard Curtin: “The recent surge in pessimism was due to lost confidence in the ability of the government to enact policies that would counteract the growing threat of a renewed recession. Consumers have shifted from being optimistic about the potential impact of monetary and fiscal policies to a sense of despair and pessimism about the role of the government. The only more common expectation than the government plays a positive role in promoting economic growth is the expectation that government can be a potent and successful force. That presumed effectiveness has  been lost. The result is that consumers have become more cautious spenders.”

Trend The Index of Consumer Sentiment continues downwards with 3 consecutive monthly decreases in June, July, and August of -2.8, -7.8, and -8.0, respectively. Therefore, the short-term trend (3-month moving average) continues downwards. The intermediate-term trend (6-month moving average) continues downwards and the long-term trend (12-month moving average) continues downwards.

Cycle History The current August 2011 Index of Consumer Sentiment is 55.7 and is just above the Great Recession low of 55.3 in November 2008. Consumer sentiment reached a Post-Great Recession peak of 77.5 in February 2011, just before oil prices spiked up. February 2011 was also the peak of several other economic indicators for the USA. A Great Recession cyclical low of 55.3 was set in November 2008. A Pre-Great Recession peak of 96.9 was reached in January 2007. In 2004 the index was greater than 100.

Consumer Sentiment Index (Chart) Below is a chart of the Reuters/University of Michigan Index of Consumer Sentiment through the latest month reported.

Consumer Sentiment 6-Month Moving Average (Chart) Below is a chart of the Reuters/University of Michigan Index of Consumer Sentiment 6-Month Moving Average through the latest month reported. The previous chart above, the Index of Consumer Sentiment, is rather like following the bouncing ball when charting human sentiment, confidence, mood, and outlook regarding the USA economy and their own individual prospects. Therefore, the 6-month moving average chart smooths out these short-term ups and downs and provides an intermediate-term perspective. The Pre-Great Recession peak was in May 2007 at 90.6 while the Great Recession low was in March 2009 at 58.0. The Post-Great Recession peak has been in June 2010 at 73.9 and the recent peak has been 73.0 in May 2011. The 6-month moving average has dropped the past 3 months at an increasing rate.

Commentary The Reuters/University of Michigan Index of Consumer Sentiment at 55.7 in August 2011 is the lowest since the Great Recession low of 55.3 in November 2008. This is recession level, gloomy sentiment. As noted by Reuters, "The Index has only been lower in three other surveys, which were taken in April and May 1980 and November 2008". Not only the short-term trend is decreasing, but even the intermediate-term, long-term, and ultra long-term trends are decreasing.

The prior month July 2011 Index of 63.7 was the lowest since March 2009 (57.3), a 2+ year low, and those were dismal days indeed. Now the August 2011 consumer sentiment has plunged significantly lower. High unemployment, high oil prices, and stagnant wages pushed sentiment down, but the bipartisan deadlock on the U.S. debt ceiling had a devastating, negative impact. In addition, Standard and Poor's downgraded the United States sovereign debt credit rating on August 5 from AAA to AA+. This bipartisan bickering also pushed down the Index in September and October 2010 before the mid-term Congressional elections, but not to this extent. USA consumer sentiment has continued at historically low levels since 2007.

Further Comments on the Survey by the University of Michigan "Consumer confidence plunged in August as consumers became increasingly convinced that a renewed recession was likely to occur. The majority of households reported worsened finances, expected no income gains, and were more likely to anticipate a rising unemployment rate during the year ahead. Consumers have shifted from being optimistic about the potential impact of monetary and fiscal policies to a sense of despair and pessimism about the role of the government. Never before in the history of the surveys have so many consumers spontaneously mentioned negative aspects of the government’s role in the economy, and never before have consumers rated economic policies so unfavorably."

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Data Courtesy of Reuters/University of Michigan

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