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Consumer Sentiment Drops to 28 Year Low
Posted By Barry Ritholtz On June 27, 2008 @ 11:12 am In Consumer Spending,Inflation,Psychology | Comments Disabled
Earlier this week, the Conference Board’s Consumer Confidence data plunged to 16 year lows. The chart at right shows that over the past 5 years, sentiment readings have been rangebound. Despite the war(s), rising prices, weak job creation, Katrina, and an otherwise mediocre post recession recovery, Americans have remained not-all-that-gloomy .
That is, until recently.
The most recent peak in sentiment was January 2007, and since then, its been more or less straight down. 2008 saw the prior range broken, to record levels of unhappiness.
What gives? This must be perplexing to those who look at Inflation and Unemployment data  without any context. The numbers seem relatively modest.
For a moment, forget all of the arguments about models and how the BLS measures things, and how thats changed over time. If we have full employment, where is the wage pressure? If Unemployment is so low, why is sentiment so negative? If inflation is contained, why the negative sentiment? Something here doesn’t compute.
We learned today that consumer spending upwards by 0.8% in May. However, that appears to be primarily inflation driven consumption, fed by stimulus checks, and higher food and energy prices. Personal income also rose, gaining 1.9% from April.
The chart below, via Merrill Lynch’s David Rosenberg , explains why: Real Personal Expenditures had moved up to a 5+% rate in the 1990s; Now, we are heading in the other direction. Annual changes in Real Personal Consumption is heading downwards. Its not the actual level, but the directional change that is negative. It seems to be following sentiment towards the zero line.
Consumers in uncharted waters
Source: Conference Board, Bureau of Economic Analysis, Merrill Lynch .
U.S. Michigan Consumer Sentiment Index Falls in June 
Bloomberg, June 27 2008
Consumer Confidence Plummets 
KELLY EVANS and ANTON TROIANOVSKI
June 25, 2008; Page A1
Consumers Wary Over Economy, Reports Indicate 
MICHAEL M. GRYNBAUM
NYT, June 25, 2008
Article printed from The Big Picture: http://www.ritholtz.com/blog
URL to article: http://www.ritholtz.com/blog/2008/06/consumer-sentiment-drops-to-28-year-low/
URLs in this post:
 Image: http://www.bloomberg.com/apps/cbuilder?ticker1=CONSSENT:IND
 gloomy: http://bigpicture.typepad.com/comments/2008/06/are-we-too-gloo.html
 who look at Inflation and Unemployment data: http://www.washingtonpost.com/wp-dyn/content/article/2008/06/17/AR2008061702463.html
 Merrill Lynch’s David Rosenberg: https://www.gpcresearch.ml.wallst.com//common/emaillink/pdf.asp?SSS_38AD5F2D949203826FE94EEB09E51957&pdf=pdf/Consumer_confidence_for_the_re.pdf
 Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/2008/06/27/consumer_conf_2.png
 Image: http://bigpicture.typepad.com/photos/uncategorized/2008/06/27/stuckflation.gif
 U.S. Michigan Consumer Sentiment Index Falls in June: http://www.bloomberg.com/apps/news?pid=20601068&sid=a0Ta5iRjGUAg&
 Consumer Confidence Plummets: http://online.wsj.com/article/SB121431191157999655.html
 Consumers Wary Over Economy, Reports Indicate: http://www.nytimes.com/2008/06/25/business/25econ.html
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