A Quick Observation on U of M Sentiment
The last time the University of Michigan Sentiment reading was at its current level outside of recessionary periods (it printed Friday at 66.5) was smack in the middle of the non-recessionary blip in the early 80s (see red circle in lower left hand corner of chart; December 1980 and March 1981):
Source: St. Louis Fed (except most recent reading)
That said, we were at this level about one year ago (see red circle in lower right hand corner of chart), but we don’t know for sure as yet whether we were out of the recession (according to the NBER and, as I’ve argued, what we call this is more an exercise in semantics than anything else). Friday’s print also represents the largest month-to-month drop in this metric since October 2008 (not a fun time, as I recall) — drops of this magnitude are exceedingly rare, having occurred only seven times in the history of the series (390 readings). I’ll note that there’s a loose contrarian correlation between sentiment and the market — sell when confidence is high, buy when it’s low. However, the correlation is not quite strong enough for me to stand fully behind it.
Anyway, might past be prologue?
Adding (Monday 11:22) David Rosenberg’s take:
The dive to 66.5 in the University of Michigan consumer sentiment for July takes the index back to August 2009 levels. Just awful. Even by November 2002 (12-months after the recession ended in 2001) consumer sentiment was at 84.
Even with the bounce-back in the equity market, the volatility is crushing confidence — along with increasing signs of slowing economic growth. A 9.5 point plunge in this indicator does not happen too often — you have to go back to the aftermath of the Lehman collapse in October 2008 and before that in September 2005 after Katrina. The decline we saw, believe it or not, was nearly as big as the plunge we saw right after 9/11. Then, you have to go back to August 1990, when U.S. troops began to amass in the mid-East for the eventual war with Iraq (operation Desert Storm).
To put this latest dive into perspective it was twice as severe as the decline after the October ‘87 crash — then again, the economy was booming at a 7.0% annual rate in the fourth quarter of that year. And, then prior to that, guess what? We endured such a decline in December 1980 when double dip concerns were morphing into reality. …
Let’s talk about what is normal and what is not. What is normal is that at this stage of the cycle, a year into a supposed recovery, the UofM sentiment index is sitting at 89.3. In recessions, the index averages out to be 73.8, and in expansions, it is usually already sitting at 90.9, on average. Today we sit at 66.5. Could it be that we are still in a recession?
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July 19th, 2010 at 9:38 am
As I look at the chart, all but the ’82 recession had such a dip about 6-18 months after the worst of the dip of the respective recession. Once might argue that four out of the five recent recessions pulled upwards fairly well after the second dip (the ’82 recession simply exhibited a straight line up, or it could be seen as the dip after the ’80 recession).
July 19th, 2010 at 10:11 am
You probably ask yourself two questions:
1) What was the former “wave peak” (prior cross) – which probably indicates direction
2) What “stimulus measures” are in effect (or in the quiver) to stop the trajectory
I’d argue that there are few arrows left in the quiver at this point (though I’m sure some will be invented)…
Therefore, the trajectory appears to be down…
This is consistent with my viewpoint that in 2008 we learned absolutely NOTHING… And that those readings will end up being “2nd inningish” with regards to the timeframe of the whole debacle…
IOW- “No soup for you” Mr. typical recovery…
July 19th, 2010 at 10:27 am
my 10:11 was not a FORECAST…
Rather, it is a “probability” referral…
July 19th, 2010 at 10:31 am
History gives us no clue to the future in the best of circumstances. Did anyone ever contemplate a black swan event in which all of the swans turn black? That we’re in an unprecedented situation makes past patterns completely null and void. History might rhyme, but this time the rhyme is gibberish.
We’re on the downward slop of peak credit with deflationary forces and disruption of the money cycle being used, discretionarily, to crush the middle class.
The Republic has ended with a whimper (it was televised, but got lower ratings than American Idol). In it’s place we have a pseudo-governmental Corporatist hegemony employing globalization and wage and fiat currency arbitrages to overpower national interests and rational public and monetary policy. If you want to make it in America nowadays, you’ll have to go overseas to do so.
Money trading between banks, central banks, and shadow banks is now our cash cow. Profitable and vital core industries and the jobs they provided have been moved away to greener pastures by and for the benefit of conscience-free capitalists (we don’t mind child labor, as long as we don’t have to look it in the face).
We have intentionally destroyed our own tax base.
Not the same as it ever was.
July 19th, 2010 at 10:45 am
How good can consumer sentiment get with the jobs situation? Many of the stim cards have been played already and the end of extended unemployment benefits and state & local (and cencus) layoffs are all headed in the wrong way.
July 19th, 2010 at 11:18 am
“…out of recession…..”
That’s a good one….
July 19th, 2010 at 1:12 pm
Developments such as unemployment reaching 14.2% in Nevada (as reckoned by the state’s Dep’t of Employment) might have something to do with this.
July 19th, 2010 at 1:31 pm
Exact levels from 30 yrs ago for this dont matter much. Direction does. this one big down month takes away an upward trend. Its a good consumer indicator. we used to use the expectations part of it in the global insight big model.
Not as important as income for spending, the key? if sentiment gets weak enough to elevate the savings rate a lot, say more than a % pt. hasnt started to confirm that yet.
Could happen– and sentiment tends to weaken before elections—-
July 19th, 2010 at 3:05 pm
What if this secular change results in the consumer being much less important in the scheme of things? Instead of 70% of the economy, just a drop to say, 50-60% might fundamentally change America and it’s economy, no?
What I think is that the consumer is going to become less of the total economy, and corporations could care less. With Uncle Sam priming the pumps, and the lion’s share of the corporate layoffs and scaleback now down, all the parties holding the keys to the economy are in position for a long slog. There will be no largescale “ramp-ups” of business, with the notable exceptions of holiday spending, and occasional bumps in demand. But bumps don’t last long, and the holidays always end. So, no need to permanently step up hiring or production.
I’d hate to be a politician right now. This is a distraught constiuency, trapped between it’s own need for cheap Chinese products that take away our very own livelihoods, and our need for higher wages to offset the piracy of food and energy price spikes.
July 19th, 2010 at 4:54 pm
Wait a minute….if the so called last recession ended for a brief 3-4 months and we went right back into another one – did we ever really exit the latest long ass recession or we just went up a little and then gave up the ghost…given that there has been no real stimulus for consumers and Main Street we are on the way to perdition?
July 19th, 2010 at 6:11 pm
“Could it be that we are still in a recession?”
It’s interesting to read people that speak as if America is this homogeneous whole. Although the few (the elite and their lackeys) are doing quite well, most of us ARE in recession.
July 20th, 2010 at 12:22 am
The question I have is how closely the Michigan sentiment indicator tracks actual consumer spending habits. My experience with it has been not terribly closely.
July 23rd, 2010 at 6:12 pm
Is it possible than Rosenberg is the worst? Or just costing people the most money (short, year ago at 900).
Does he not see a nearly identical confidence point in 1992? Is his marriage to the “double dip” making him blind?
When the SPX hits 1,300 before year-end does he — a) retire? b) commit ritual Japanese suicide? c) re-write history and keep his mouth running for money?
Economic #s in europe this week looked spectacular. Some of the best readings in 4-5 years, some of the best acceleration on major reading ever. Oh yeah, and earnings continue to be strong. I hear that means something.