28/2/16: Every Little Hurts: U.S. Consumers and Inflation Perceptions

I have written quite a bit about the wobbles of time-space continuum in the U.S. economic growth universe in recent months. But throughout the entire process, the bedrock of U.S. growth - consumer sentiment - appeared to be relatively stable as if immune to the volatility in the fortunes of the broader economy.

This stability is deceptive. Here is a chart plotting sub-series in the University of Michigan surveys of consumer confidence:

The above shows several things, some historical, others more current.

Firstly, the impact of the crisis of 2008 and subsequent second dip in the economic crisis fortunes in 2011. These were sizeable and comparable in terms of the magnitude to the abysmal late 1970s-early 1980s period.

Secondly, a steady decline in inflationary pressures on households since the early 2012. A trend bending solidly the Fed narrative of well-anchored inflationary expectations post-QE. A trend that accelerated since mid-2014 to flatten out (without a solid confirmation) toward the end of 2015.

Thirdly, a longer view of the things: despite low by historical standards inflation, the share of U.S. households still concerned with its impact on their well being is... err... high and sits well above the average for 1993-2004 golden years of the first 'Great Moderation'.

All of which, in my view, continues to highlight the utter and complete failure of traditional fiscal-monetary policies mix deployed since 2008 by the U.S. Fed and richly copied by the likes of the ECB. It also reflects a simple fact that inflation (even at near-zero bound) remains a concern for households who experience decades of weak income growth.

If, per Tesco adds, every little helps, then, when it comes to the household wealth destroying economic policies, every little also hurts...

12/08/2011: US Economy - Consumers' quiet rejection of Obama-nomics

The University of Michigan Consumer Confidence survey for August released to day pushed the index reading to the lowest level since May 1980 in a clear sing that despite all the "Yes we can" rhetoric from the US Administration, American consumers are simply not buying into the Obama-nomics. Or, perhaps, it's the Obama-nomics that is not trickling down to the US households still overloaded with debt and expecting massive future tax increases courtesy of the US Governments' handling of the fiscal spending side.

Historical average Consumer Confidence reading now stands at 85.8 against the Crisis period average (since January 2008) of 67.6. Jimmy Carter Presidency average for Consumer Confidence was 69.9. Barak Obama's tenure in office so far averages 69.3. The new low for Obama presidency is on par with Jimmy Carter's lows, which takes some doing.

Here's the chart mapping the course of Consumer Confidence from November 2008 cyclical low of 55.3 to today's abysmal reading of 54.9. Short of the Irish banks shares, I have not seen anything that scary, folks.

To me, the above picture reinforces my view that the US economy is now on a firm track to hit recession in Q3-Q4 2011. Unless, of course, the Fed steps in with US$1.5-2 trillion of fresh cash to, this time around, bailout actual American households.

Lessons from the US Consumer Confidence data

US Consumer Confidence indicator (CCI) posted a new record low in the pivotal month of December. According to the Conference Board :
“CCI, which had increased moderately in November, declined to a new all-time low in December. The Index now stands at 38.0 (1985=100), down from 44.7 in November. The Present Situation Index plummeted to 29.4 from 42.3 last month. The Expectations Index decreased to 43.8 from 46.2 in November.”

Current conditions

“Those claiming business conditions are "bad" increased to 46.0% from 40.6%, while those claiming business conditions are "good" declined to 7.7% from 10.1% last month.”
This suggests that pessimism is taking a stronger hold amongst those who were previously either neutral or optimistic – a sign that this downturn is now being felt not only at the lower margin of earnings distribution, but also at the core middle and upper-middle classes.

Exactly the same dynamic – falling numbers of previously optimistic respondents, along with ‘marginal’ respondents – was evident in the assessment of the labor market:
“Consumers' assessment of the labor market was also considerably more negative than a month ago. Those saying jobs are "hard to get" rose to 42.0% from 37.1% in November, while those claiming jobs are "plentiful" decreased to 6.2% from 8.7%.”

Short-term expectations

Probably the worst piece of today's news relates to the future expectations. In a marked departure from the current conditions trend short-term expectations have shown greater polarization of US consumers away from the center, with marginal respondents migrating toward either greater optimism, or pessimism.

“Those anticipating business conditions to worsen over the next six months increased to 32.8% from 28.3%, while those expecting conditions to improve rose to 13.4% from 11.5%. The outlook for the labor market was also somewhat mixed. The percentage of consumers anticipating fewer jobs in the months ahead increased to 41.0% from 33.7%, while those expecting more jobs increased to 9.7% from 9.2%. The proportion of consumers anticipating an increase in their incomes decreased to 12.7% from 13.1%.”

Lessons for Ireland

In light of the US data, over the next two-three months we should expect:

• Further deterioration in consumer confidence here, as to date, both the comparative dynamics of the Irish time-series and the underlying fundamentals for CCI in Ireland have been closely following those in the US;
• Deeper declines in expectations component in Ireland than in the US, as underlying 'misery index' fundamentals for Ireland are showing much more negative future dynamics for Q1-Q2 2009;
• Significantly stronger shift of previously marginal and optimistic consumers toward deeper pessimism (with respect to both their perceptions of current conditions and future expectations) as Irish downturn starts to feed through to the middle and upper-middle classes at an accelerating rate starting with January.