August 'Rebound' in Confidence: Not Much of a Rebound

As Calculated Risk noted, the commentary on the August Consumer Sentiment number from the University of Michigan ran along the generally positive tone echoed by the Wall Street Journal:

Main Street is beginning to feel some relief, though, according to the Reuters/University of Michigan preliminary reading of consumer sentiment for September, released Friday.

The index rose to 70.2 in September from to 65.7 in August, the first increase since June. Consumers felt better about current conditions, and about the future.

Looking at a charts, it is tough to see much of a rebound in August; the bounce happened in April, and the index has been moving sideways since:

Still, even moving sideways is better than falling, and is telling you something about the path of spending, suggesting that consumers are moving toward spending just about what they did last year:

That we are headed to zero year-over-year growth in spending should not come as a surprise. The calendar is now working in the favor of the data as we move past the big declines in spending registered last summer:

When does confidence start pulling higher? For that, we need the job market to improve at a more rapid pace, thereby reversing this pattern of private wage and salary growth:

Beyond that, your forecast for aggregate spending is largely based on your view of a.) jobless recovery or not, b.) the direction of saving rates, and c.) the accessibility of credit in the post-bubble era. Note that the latter alone suggests persistent downward pressure on spending. Returning to the rates of spending growth (and, by association, the confidence numbers) of the pre-Great Recession period looks to be unlikely.

In short, the August "rebound" in confidence isn’t much of a rebound - the rebound happened in April. That said, slowing "improving" labor market conditions argue for a continuing gain in confidence in the months ahead, but I would expect the gains will continue to come slowly.

Comments

[Art Trader:]

The consumer is confident that he/she will be buying private label (store brand) cereal for a while. Ralcorp (RAH) should gain some ground in establishing some new long-term consumer behaviors. Even Post (their peculiar national brand - diluting the pure play on generics) has unveiled "retro" (read: generic looking) boxes for raisin bran and grape-nuts. Target and Wal-Mart have revamped their brands to make packaging look even cheaper. Should be fun to watch these developing generic wars.

Sep 14 08:33 AM

[MikeD71:]

I noticed that Wal Mart had changed their "Great Value" brand labeling. Indeed, it does make it look "cheaper." It's the same price as the previous label, but either way...I have become accustomed to buying alternative brands, and will continue to do so. And actually, there are a few items I like more than the name brands. Things have changed, at least for me, forever.


On Sep 14 08:33 AM Art Trader wrote:

> The consumer is confident that he/she will be buying private label
> (store brand) cereal for a while. Ralcorp (seekingalpha.com/symbo...)
> should gain some ground in establishing some new long-term consumer
> behaviors. Even Post (their peculiar national brand - diluting the
> pure play on generics) has unveiled "retro" (read: generic looking)
> boxes for raisin bran and grape-nuts. Target and Wal-Mart have revamped
> their brands to make packaging look even cheaper. Should be fun to
> watch these developing generic wars.

Sep 14 08:44 AM

[robert.b.fe...:]

Those who have lost their jobs have little confidence. Those who still have jobs while not optimistic are a little less pessimistic. Chuckie's saving rate jumped 7% this year so spending is not going up soon. A wiser man than I noted that it's a recession when your neighbor is unemployed and a depression when you are unemployed.

Sep 14 08:58 AM

[enigmaman:]

The recovery is uneven, showing signs of bottoming but not finding a bottom, so it can sink further, this rally is news driven, living day by day, hope eternal, inflate the positive reports deflate the negative reports, media has a political bias to be positive about the economy, they have invested everything in the new administration succeeding so they cannot and will not tell it like it is. As a result many people really have no clue about the true state of our economy, because reports say consumer confidence is up we are then told we are turning the corner, when we are told unemployment is easing so we are turning the corner, when we are told manufacturing is up we are told we are turning the corner, in reality when you look at these all you can say is things are getting less bad, until the trend reverses less bad can get worse, the trends that will drive the economic engines have yet to reverse

Sep 14 10:16 AM

[Mad Hedge F...:]

mmtm The dinosaurs of the market, like myself, are collectively being struck by the similarity of the current stock market and that of September 1987, just before the one day, 25% plunge in the Dow. That was when I tied to buy stock with the index down 300 from a payphone in Paris, only to have the trader at Morgan Stanley burst into tears and smash the phone down on the desk (remember that David G.?). My new guru is Gluskin Sheff’s strategist David Rosenberg, who says that stocks have already discounted two years of recovery and now carry a lot of risk. It is priced for 40% EPS growth and a “V” shaped recovery, which we have zero chance of getting. GDP this year will come in at negative 2.5%, and will claw back a listless 1-2% rate in 2010. Stocks are discounting a 4% GDP growth, compared to only 2% for bonds, so he’d much rather own those. With a deflation rate of minus 2% and high yield returns of 12%, junk now offers a 14% inflation adjusted yield, not bad. The secular 25 year bull market in credit expansion is over. Rent still accounts for a third of the CPI, and they are falling for the first time in 17 years. Sure, we’ll see ephemeral sugar highs like those for cash-for-clunkers and the tax credit for first time home buyers. But at best, it will only add up to a series of small “W”’s, or what I refer to the as the “square root” shaped recovery. With the price of everything stretched, you better start reeling in some of that risk.

Sep 14 11:20 AM

[Hans111:]

Mathematically speaking:
these idiots on wall street celebrate the change of slope at which things are getting worse. (i.e.: less unemployment meaning this month it was only 200000 less jobs vs last month it was 243000 less HURRAY)
I think we should celebrate when no more jobs are lost. And then we should celebrate that MAYBE we have reached some sort of bottom.

What really gets me is that there are people buying the BS

I tell you the will not stop robbing everyone until they have totally killed what they call their "business"

Sep 14 07:40 PM