Friday, September 30, 2011

USA Consumer Sentiment Continues at Recession Levels (Charts) *Prolonged period of economic stagnation expected*


Thomson Reuters/University of Michigan
USA Consumer Sentiment

Index of Consumer Sentiment, University of Michigan, Ann Arbor (September 30, 2011) Consumer confidence improved in September, although it is still quite weak and remained below the year earlier reading. Most of the gain was due to consumers shifting from anticipating an even worse economy to expecting the economy to stagnate at its current depressed level. The majority of consumers expected their personal finances to remain unchanged, the same dismal pace of economic growth, and no improvement in the unemployment rate during the year ahead, The Expectations Index still points toward the likelihood of a renewed economic downturn at worst, and at best, indicates growth in consumer spending that will be too slow to enable any improvement in the jobs situation.

Commenting on the Survey Surveys of Consumers Chief Economist, Richard Curtin: “Although the small September gain still left consumer confidence at low levels, the more troublesome finding was that consumers have come to anticipate economic stagnation as the most likely outcome over the longer term. Whether it’s their own diminished income expectations, the inability of the economy to generate a sufficient number of jobs, or uncertainty about future taxes, spending and entitlements, the most probable outcome expected by consumers is a prolonged period of economic stagnation. Rather than spending more and taking on new debt, consumers are intent on rebalancing their finances to prepare for a new economic era.”

Trend The Index of Consumer Sentiment increased +3.7 to 59.4 (revised) after 3 consecutive monthly decreases in June, July, and August of -2.8, -7.8, and -8.0, respectively. Therefore, the short-term trend, intermediate-term trend, and the long-term trend continue downwards.

Cycle History The current September 2011 Index of Consumer Sentiment is 59.4 (revised) 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 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 multi-year 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 multi-year 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 4 months.

Commentary The Reuters/University of Michigan Index of Consumer Sentiment at 59.4 (revised) in September 2011 above the prior month August low of 55.7, which was the lowest since the Great Recession low of 55.3 in November 2008 and also at 1980 recession levels. Essentially the current reading is at recession level, gloomy sentiment. The index averaged 89 in the five years leading up to the recession that began in December 2007 and ended in June 2009. 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 August 2011 Index of 55.7 was the lowest since November 2008 (55.3), a 2+ year low, and those were dismal days indeed. Now the September 2011 consumer sentiment has increased, but continues near these low levels. 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.

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Data Courtesy of Reuters/University of Michigan

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