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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.

Source: Consumers Shouldn't Be So Gloomy