CONSUMER SENTIMENT SURVEYS. DON’T BE TOO SENTIMENTAL!

A lot is being written and discussed about consumer confidence as an economic or investment tool. Bears, of course, are using recent surveys any which way they can. Throughout my career, I have often tried, and always failed, to find an objective and investable use for them. Much like investors sentiment surveys (see INVESTOR SENTIMENT SURVEYS: DON’T BE TOO SENTIMENTAL!)

I don’t know if anybody can see something I can’t see but this 40-year chart of the Conference Board Consumer Confidence Index from Doug Short reveals nothing useful about the economy, either from a level or trend viewpoints. See Doug’s post if you want to dig deeper.

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More charts from John Lounsbury via Doug Short.

The University of Michigan survey is a bit more helpful, at least at the troughs.

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Finally, the National Federation of Small Businesses Index is also of limited value for investment purposes.

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Here is an excerpt from an FT Alphaville post last week:

Certainly the discouraging news on consumer sentiment was coming in spades through the middle of this week. Last Friday’s UMich consumer sentiment index hit a five-month low, Tuesday’s Conference Board survey was equally bad, and a Gallup tracking poll reported a big weekly decline in self-reported spending. (We’re including the Gallup poll as a sentiment measure because of its imprecision.)

On Thursday came a new report, this one from RBC, telling a different story — the consumer outlook for April is better than it was for March.

Not helping the confusion has been the variability from month to month of each indicator. Both the UMich and Conference Board numbers each hit three-year highsjust in February. The Gallup poll showed consumption behaving erratically since the start of the year, and the RBC report was a reversal of three straight monthly declines.

So the consumer remains downbeat. Yet he seems to be planning major purchases:

Here are 3 charts from a new Moody’s Analytics paper revealing substantial pent-up demand for cars, major appliances and houses. Yes, houses! In fact, these are more than pent-up demand. US consumers are actually planning to buy:

Pent-up demand can remain so for a while if consumers’ financial condition is too restrained. The recent sharp jumps in food and gas prices could curtail discretionary spending, unless people really want, or really need, to buy a new car, a new appliance, or a new house. So far, consumer spending has held up pretty well:

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Consumers could decide to dip into their increased savings to fulfill this pent-up demand.

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Housing market fundamentals are gradually getting more positive.

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Existing home inventory is being worked out…

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…while home sales have flattened out at the 1999-2000 level when excluding the government-induced zig-zags. Prices remain under pressure however.

Chart: Housing situation still difficult

 

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