Friday, June 12, 2009

Consumer Confidence Rises 4th Straight Month for the First Time Since the End of the 2001 Recession

June 12 (Bloomberg) -- Confidence among U.S. consumers rose this month for a fourth straight time, reflecting signs that the worst recession in at least five decades may end this year. The Reuters/University of Michigan preliminary index of consumer sentiment increased to 69, less than forecast while the highest level in nine months, from 68.7 in May.

“Confidence is slowly but surely coming back,” James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut, said before the report. “In the next few months we should see more follow-through in the labor market, which in turn should give confidence a further boost, which in turn should lead to a sustained recovery in consumer spending.”

MP: The last time the Michigan consumer sentiment index increased in four consecutive months was the period from October 2001 to January 2002, which signalled the end of the 2001 recession (see shaded area in chart above). The four-month cumulative increase of 12.7 points in consumer sentiment from March to June 2009 (see shaded area in chart) is even greater than the 11.2 point increase in late 2001-early 2002.

9 Comments:

At 6/12/2009 10:35 PM, Anonymous Cheech (in) Marin said...

Did you notice that during the last recovery the change in consumer confidence was high and rising while in this four month period the change is falling from month to moth.

Why were there no recessions during all those previous downturns of this metric? Why were booms absent after successive months of optimism?

Why don't you see if the conference or nationality of the Stanley Cup winners were the same and base an optimistic forecast on that? It would be just as spurious.

Surveys of consumer confidence are nonsense. How all the people actually behave is a much better predictor than what 5000 people who consent to be surveyed 'feel' at the moment of the call. Hope is neither an economic policy nor a predictor of recovery.

 
At 6/13/2009 8:47 AM, Blogger Alan said...

Cheech,

There isn't a magic statistic that will tell us everything we need to know, but a rising consumer confidence is a big positive in this recession, which I believe was caused by a big panic from the banking crisis that caused a huge panic in consumers stopping spending.

If you believe that, then it's rational to believe tht the recovery will be consumer led, and a rise in consumer confidence is critical (and likely as they realize that this isn't 1932).

Now this chart in particular is month to month change, not a overall metric. if you look at these charts:

http://www.market-harmonics.com/free-charts/sentiment/consumer_confidence.htm

you see a overall ranking, but also two other views showing that we had a long, long slide on consumer confidence from the end of 2006 (likely due to an unending barrage of negative crap from the early beginnings of the election and from the election of an inept congress).

I do believe that the consumer confidence charts I linked above support my view of the recession.

 
At 6/13/2009 1:09 PM, Blogger Benjamin said...

Consumer confidence has been rising during the Obama Administration. The deficit spending coupled with printing presses is working.
Also, the fact that there seems to be serious people who show up for work at the White House whens it comes to macroeconomics is another plus. The Bu$h jr. Gong Show is over.
I hope the deficits get pared back in a couple of years. The printing presses? Let 'em run for a while. We need a sustained round of moderate inflation to deleverage. I vote for 10 years at 5 percent per annum.
There is no way the federal government will ever pay off its debts otherwise, and many others. Real estate investors, hedge funds, insurance companies and the feds, and the USA (trade debts). We can't pay it back. We are the only nation that can pay back our debts with cheaper dollars.

 
At 6/13/2009 6:33 PM, Blogger Alan said...

What a shock that Benjamin comes out in favor of the Obama administration. Good thing we have all those "serious" people who know better than to worry about contracts and who know when to run up the deficit so we have an excuse to inflate our way out of it.. blah, blah, blah...

Seriously, I've seen a wave of these types out on other boards. The playbook seems to be:

1. claim to be a conservative or moderate

2. bash Bush incessently

3. justify whatever Obama does at all costs

 
At 6/13/2009 11:14 PM, Blogger Robert Miller said...

Alan, in the history of the United States there has never been a consumer led recovery. They have almost all ended by recovery in durable goods and residential investment.

I suggest you read "The Housing Cycle IS the Business Cycle" by Edward Leamer from UCLA.

Trinkets, gadgets and cans of beans are not going to save us.

You are badly mistaken about the financial collapse. It had nothing to do with 'panic'. It had to do with lending large sums of money to bums who couldn't afford it and projects that could not all succeed.

 
At 6/14/2009 12:10 AM, Blogger Alan said...

Robert,

you're welcome to believe what you want. Unfortunately, the lending problems of 5 states would not have been enough to tank the economy without some silly accounting rules put into place in 2007 and an inept political response to the problem that was primarily due to it happening in the middle of an election season (although I preserve plenty of blame for Paulson). Certainly the housing was the main problem, but not the accelerator for the recession.

Our primary disagreement about the origin of the recession is in my opinion it was not caused by tight monetary policy or by other means, but by a slowdown in the velocity of money. That is something that will show up through consumers prior to seeing it in business investment. if I am correct, drawing down inventories will lead to business investment, not the other way around.

Anyway, we will soon see - inventories have been dropping rapidly, consumers continue to shop and at increasing levels, while, durable good orders are showing signs of bouncing back as well.

I'm skeptical long term, but in the short term see some recovery this year. you're welcome to short the market all you want, though.

 
At 6/14/2009 12:50 AM, Blogger bobble said...

robert miller:"Trinkets, gadgets and cans of beans are not going to save us.
You are badly mistaken about the financial collapse. It had nothing to do with 'panic'. It had to do with lending large sums of money to bums who couldn't afford it and projects that could not all succeed."

amen. that is the best analysis of the current situation i have seen on this board.

 
At 6/14/2009 2:08 AM, Blogger Robert Miller said...

What "silly accounting rules" are you talking about? Mark to market?

Accounting rules don't affect the state of a financial institution's troubles, only the realization of them. Banks were hoping their worthless assets would recover their collateral value before they had to write down the losses and pay the piper with provision expenses for loan and lease losses.

Housing was the source of the problem. The accelerator was liquidity being pumped back into the housing market by Fannie, Freddie, FHLB, and securitization of mortgages. This vastly increased the debt load of society and spread the risk far and wide. If the risk of default remained diversified, it would have been ok. But the failure to internalize the purchasing, financing, and production decisions of buyers, lenders and builders turned the aggregate mortgage pool into a systemic risk. So one person's probability of default was correlated to another's.

The problem is NOT with only five states. California originates about 13 percent of all US mortgages and Florida a considerable amount by population alone. But the housing problem has, at this point, affected every state in the nation. Only four states have increasing house prices, and even those have slowed considerably. Every state in the nation except Alaska is in recession.

Quit with the macro mumbo jumbo about 'velocity of money.' It's crap. Every problem has its explanation in microeconomics and that's where all the solutions lie.

When I said "consumer" led recovery I actually meant to say retail. Consumers are not shopping at increasing rates. Personal savings is up dramatically. Sales taking place from depleting inventories are mostly at LOSSES for producers. This is a fire sale, not an economic turnaround. When people aren't buying houses, cars, and washing machines they've got more to spend on gadgets, trinkets and beans.

 
At 6/14/2009 12:14 PM, Blogger Alan said...

Wow, what an argument. Call things "mumbo jumbo" or "crap". Are you going to pull out the "I have a Phd" card here soon as well

I don't really care what the F you believe in. The U of C econ prof I talked to last week (I somehow doubt they'd let you in the door there) and the Fed economists I studied under didn't think those things were "crap" or "mumbo jumbo"

And you're entirely wrong about state and realization of banking troubles. If a loan is fully performing and is part of a package that is fully performing that package of loans (as Isaac and McTeer and others have pointed out) can still be forced to be marked to a huge loss, even when there's absolutely no expectation of that sort of loss (unless we suddenly turned into a 3rd world nation -- and nothing indicates that that will happen).

As I suggested before, you're welcome to short the market in a broad based way to put your money where your mouth is regarding your pessimism. Otherwise don't bother with your bullying BS.

 

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