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Confidence at 2 Year Lows
Posted By Barry Ritholtz On September 28, 2005 @ 11:26 am In Economy | Comments Disabled
Confirming similar readings as the University of Michigan survey, the Conference Board’s Consumer confidence index slid to a two-year low in September. The WSJ  noted that "consumer-confidence index fell to 86.6 in September, down sharply from 105.5 in
August. That marked the largest decline in confidence since October 1990, when
consumer spending was contracting in inflation-adjusted terms. The level of
confidence was the lowest since October 2003. The index was equal to 100 in
Round up the usual suspects:
Getting the blame for the plummeting confidence readings were soaring energy prices, new-home sales below expected numbers (as prices rose), and a job market best described as weak but improving. Those who said jobs were "hard to get" ticked up to 25.4%
from 23.1% in August.
Surprisingly, the confidence drop cut across all economic strata: Low end Consumers have
been squeezed by gasoline prices; Middle class spenders have been increasingly dependent on rising
home values or falling mortgage rates as a source of ready spending cash; Even luxury retail sales — typically far less sensitive to
energy-prices — suffered in September. Michael Niemira, The International Council of Shopping Center’s chief economist, said "There are lots of worries and
few positive signs out there."
The WSJ Ubiq-cerpt:™
"Taken together, the reports point to potential troubles for consumers, who have been squeezed by soaring gasoline prices and who depend increasingly on rising home values to fund their purchases. Household spending has proved resilient to shocks in the past, though it remains unclear whether that will be the case this time.
The Conference Board said its consumer-confidence index fell to 86.6 in September, down sharply from 105.5 in August. That marked the largest decline in confidence since October 1990, when consumer spending was contracting in inflation-adjusted terms. The level of confidence was the lowest since October 2003. The index was equal to 100 in 1985.
The private research group attributed the drop to rising gasoline prices and Hurricane Katrina, which battered the Gulf Coast in late August. A softer job market also seemed to be a factor. The percentage of individuals saying jobs were "hard to get" increased to 25.4% from 23.1% in August. It was the highest percentage in that category since last December.
"Fuel prices remain high, though they have retreated in recent days, and when combined with a weaker job-market outlook, will likely curb both confidence and spending for the short run," Lynn Franco, director of the Conference Board’s Consumer Research Center, said. "As rebuilding efforts take hold and job growth gains momentum, consumers’ confidence should rebound and return to more positive levels by year end or early 2006."
The housing market is an important wild card for consumers. Last year, households supplemented their spending power by borrowing nearly $600 billion against the value of their homes, according to research by Federal Reserve Chairman Alan Greenspan. A housing slowdown could sap that source of spending. (See related article.1)
The Commerce Department’s report on August sales of new single-family homes hinted at a slowdown, though the evidence is far from conclusive. Sales of new homes decreased 9.9% to a seasonally adjusted annual rate of 1.237 million, after rising 5.3% the month before."
Correlation & Tendencies:
Confidence is a tricky issue to use as an indicator: On the one hand, it tends to lag, follwoing rather than anticipating events. Further, we’re always better off watching what people DO rather than what they SAY.
Still, we cannot completely ignore these drops, as there is a tendency — not a 100% correlation, mind you — but a tendency for lower confidence to beget reduced spending. That’s why all the other indicators I follow are so important to my understanding of what is most likely to occur next.
Consumer Confidence Weakens To an Almost Two-Year Nadir 
Energy Prices, Job Market Weigh on American Minds; Sales of New Homes Drop
THE WALL STREET JOURNAL, September 28, 2005; Page A2
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URLs in this post:
 WSJ: http://online.wsj.com/article/0,,SB112782716724653222,00.html
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