Consumer Confidence at 6-Month Low

Discussion in 'Economics' started by universaltrader, Apr 6, 2007.

  1. yahoo
    Friday April 6, 7:48 am ET
    By Jeannine Aversa, AP Economics Writer
    High Gas Prices, Housing Slump and Stock Market Turbulence Undermine Consumer Confidence

    WASHINGTON (AP) -- Consumer confidence sank to a six-month low as higher gasoline prices, a housing slump and stock market turbulence made people fret more about the economy.

    The RBC Cash index showed confidence dropping to 85.4 in April. That was down from 92.3 in March. The new reading was the lowest since 83.1 in October. The index is based on the results of the international polling firm Ipsos.

    "The consumer is very nervous about the situation," said Ken Mayland, president of ClearView Economics. "One factor that is figuring into the drop in confidence is the rise of gasoline prices. Some places are close to $3 a gallon. A lot of consumers think that will poison the economy and the outlook," he said.

    It marked the second straight month that consumer confidence has declined. That drop comes as the national economy is stuck in a sluggish spell, mostly reflecting the troubled housing market. At the same time, prices for gasoline and other goods are rising, pinching peoples' wallets.

    Gasoline prices climbed to $2.71 a gallon nationwide in early April, from $2.61 a gallon near the end of March, the Energy Department says. Prices in California have swept past $3 a gallon.

    "Consumers appear to be anxious about the economic climate in the face of the rise in gasoline prices as well as the volatility of the stock market and the ongoing woes of the housing market and the subprime -- or risky -- mortgage market," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.

    Peoples' feelings about current economic conditions slid to 99 in April, from 107.5 in March.

    Consumers also expressed even more angst about how the economy and their own financial fortunes will unfold over the next six months. This expectations measure fell to 41.7, also a six-month low. In March, this gauge stood at 49.3.

    "Consumer confidence fell because gas prices rose to a high since September," said T.J. Marta, fixed income strategist at RBC Capital Markets. "Additionally, ongoing concerns about the housing market and worries about the increased tensions regarding Iran and Iraq" weighed on consumers' psyches.

    The weakening of consumer confidence comes as President Bush continues to cope with a low job-approval rating of 35 percent from the American public, according to a separate AP-Ipsos poll. On the economy, just 38 percent approve of the president's economic stewardship, while 60 percent disapprove, the poll shows.

    Consumers are a major force shaping overall economic activity. The further ebbing of confidence raises new questions about consumers' willingness to spend. So far, they have been buying at a sufficient pace to keep the economy expanding. The worry is that they might cut back sharply if energy prices soar, or the housing market takes a turn for the worse.

    Federal Reserve Chairman Ben Bernanke doesn't believe the economy will fall into recession this year. But former Fed chief Alan Greenspan has said there's a one-in-three possibility of that happening.

    One force helping to buttress consumers is that the job market has remained in good shape despite the slowing in overall economic growth.

    Consumers' feelings about the job market -- an important ingredient coloring their perception of economic security -- slipped to 126.4 in April, down from 128.4 in March. Still, the new reading is not far from a record high of 131.9 registered in February.

    An index tracking peoples' attitudes about buying, saving and other investment decisions dropped to 92.3 in April, compared with 96.5 in March.

    The overall confidence index is benchmarked to a reading of 100 on January 2002, when Ipsos started the survey.

    The RBC consumer confidence index was based on responses from 1,000 adults surveyed Monday through Wednesday about their attitudes on personal finance and the economy. Results of the survey had a margin of error of plus or minus 3 percentage points.
  2. I didn't see this on TV anywhere. Must not have been worthy of reporting.
  3. FWIW, I posted that article on a political bboard and was told these polls are skewed by Democrats who want to make the administration look bad.
  4. If one runs a simple regression on monthly changes in the consumer sentiment index and subsequent changes in SP500 or DJIA, one will discover that no relation exists b/n two data sets with R^2 and a slope of the regression standing at perfect zero.

    This is another indicator that is totally useless to anyone who is trying to extract profits from the market.

  5. Don't you have it backwards? The S&P-500 "guides" consumer sentiment higher or lower in phase with its own fluctuations.
  6. Nazzdack,

    You are correct. What I was trying to say is that when you and I learn about consumer confidence numbers, they are completely useless, and have no predictive power. However it is not how it is presented by the mainstream media, as their implicit message is that lower consumer confidence will lead to worse times, gloom and doom, and terrible things like lower stock markets and higher unemployment. This message is not only coming from the media, but from the counterparties that we deal with (read -- top ten banks), when sharp spikes in consumer confidence up or down cause an avalanche of phone calls and invitation to hedge (read -- overtrade).

    In summary, all I was trying to say is that indicators such as is CCI are useless for active traders / investors, but you already knew that.

  7. I could swear I'd read somewhere that consumer confidence numbers rising or falling predicted durable goods sales rising or falling.