Consumers Shouldn't Be So Gloomy

Consumer confidence (the term used by the Conference Board) and consumer sentiment (the label used by the University of Michigan) are not quite at their all-time lows, but they are very close to them.

          

This seems a little odd because two of the biggest elements of consumer attitudes, unemployment and inflation, are quite benign.

Unemployment, at 5.5 percent, is a hair below its long-run average (5.6 percent).  Inflation (all items) is 4.1 percent, only a little above its long-run average of 3.7 percent.

Why the doom and gloom?

Maybe home prices (see the previous post).

Maybe gasoline, but that's not as obvious as it sounds. The gas price hikes are incorporated (except for the very last month) in the inflation rate. But perhaps consumers are giving gas a higher weight than the folks who compile the Consumer Price Index. Do consumers realize that apparel prices are down from a year ago? I just bought a new suit, but it's hard for me to know if the price was lower because prices of comparable suits are lower, or perhaps I picked a suit that's not quite as nice as the last one I bought. I know what I pay for gas, but I'm not sure what I pay for underwear. So I think that maybe consumers are giving a disproportionate weight to gasoline prices.

Maybe it's election year rhetoric making people gloomy, or lousy weather, or the President's low approval rating. All things considered, though, attitudes are worse than the fundamentals dictate. Look for consumers to decide sometime soon that the sky is not falling after all.

Comments

[Jplout]

True Unemployment is real and a lot higher than the fake numbers the government try to feed us. The same as Tue inflation.
You obviously have not gone grocery shopping.
I predict full recession by first quarter of 09.



Keep drinking the Kool-aid.

Useless article, proof that you can't fix stupid.

[iThinkBig]

Put the gloominess or lack thereof into camps:

1) 30% GDP Megacorporations - Has cash reserves, access to additional credit and currency exchange advantages, tax advantages, heavily invested in emerging markets as hedge.
2) 21% GDP Government - This sector has grown in the last few years, noticeably into defense spending which also assists #1 group.
3) 49% Small Business - Negligable government help (thanks for the $1,200 to go toward the heating bill), no tax help, no legal help, no banking help, no investment community help. Small business is on it's own facing predatory policies on inflation and utilities. Pain began in August of 2007 and has accelerated sharply. Massive household debt (which is choice but servicing this debt now problem).

Sporadic business in camp #1 like airlines hurting badly but in general, groups #1 and #2 are insulated this year. Group #3, call it Main St. has begun dragging down Wall St. and will continue to do so for a long time to come. Skilled job creation is needed badly in energy and higher education in government subsidies. There is no job or sector cushion for this freefall today. It's going to be REAL ugly.

[pepster]

No, the consumer is not giving a disproportionate weight to gas. Joe Average buys gas and food everyday but buys closing only every now and then, so gas and food should definitely be given more weight.

[Bill Conerly]

Jplout: BLS publishes several alternative measures of unemployment, which might better reflect the underlying level. But they all show the same trend relative to past data.

iThinkBig: interesting decomposition into three camps. What's the data source for the split between megacorps and small business?

pepster: there's actually data on that from BLS Consumer Expenditure surveys. Spending on apparel is almost, but not quite, as large as spending on gasoline.