Consumer Expectations Hit October 2007 Levels

by: Stone Fox Capital

Likely missed in all the headlines Friday surrounding financials and dealership closings was the economic news that both expectation components of the University of Michigan Survey of Consumers and the Empire State Fed Index reported numbers that showed both the consumer and manufacturing sector expectations at the levels when the stock market peaked in Oct 2007 and prior to the start of the recession. Now the current sentiment wasn't nearly that high in either report, but that's to be expected in a recession.

Both reports showed current numbers back into the Sept/Oct 2008 levels before the market cratered. A period where the S&P500 stiil constantly traded in the 1,200 range compared to 900 today. Whehter financial situations will allow for more spending at the consumer or business level is one thing, but apparently the psychology of the market is much brighter than thought. For the first time in a long time, people actually see a better future even though it comes from being at such a horrible low.

University of Michigan Survery

According to the preliminary Michigan Surveys of Consumers, consumer expectations are at the highest level since Oct 2007. The consumer sentiment is at the highest levels since Sept 2008. That's pretty amazing considering the stock market was at 1,200 back in September and the housing and job markets have continued to plunge. Based on these numbers, I'd expect some more snap back in retail spending. For the first time in 20+ months, consumers actually see a brighter future. Now, while this doesn't always impact spending in the short term, it ultimately will have an impact.

Normally I'd not pay attention to this report because it doesn't always translate to consumer spending but expectations have reached a reflection point. When psychology turns it doesn't turn back that easily.

  • The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence for May rose to 67.9 from 65.1 in April.
  • This was above economists' median expectation of a reading of 67.0, according to a Reuters poll.
  • The index of consumer expectations jumped to 69.0 in early May, its highest since October 2007 and up from 63.1 in April.

Empire State Fed index

More good news on the economic front overlooked Friday from the Empire State Fed Index. Another 'best since Oct 2007' reading for future expectations. The number was a remarkable 44 which is way above zero and considerably more bullish then any other reading in the index. Shipments were positive for the first time in months. Inventories remained considerably negative which is actually bullish because they'll need to restock in the near future.

The only major negative was a decline in orders, though the number was still better then the March lows. The huge bounce in April probably contributed to the slack in May.

  • The New York Fed's "Empire State" general business conditions index climbed to minus 4.55 in May--its highest since August 2008--from minus 14.65 in April. In March, the index sagged to minus 38.23, its weakest since its launch in July 2001.
  • The regional Fed's index on future business conditions rose to 43.8, its highest since October 2007.
  • The regional Fed's employment index climbed to minus 23.86 in May from minus 28.09 in April, while its shipment index rose to 1.29, the first time it was above zero since last summer, prior to the peak of the financial crisis.
  • Its inventory reading increased to minus 21.59 from a record low of minus 35.96 in April.
  • The report's new order index retreated to minus 9.01 from minus 3.88 in April when it posted a huge 40-point jump from March.