Several confidence measures in the United States
have returned to the levels they held before the great financial collapse last
fall. Do they presage an impending economic recovery?
US Consumer Confidence readings from the Conference Board and
University of Michigan have pulled out of their deep post
September troughs.The same is true for
the Institute for Supply Managementâ€™s (ISM) manufacturing and services
surveys.But these forward looking sentiment
statistics contrast markedly with measures that gauge actual economic commitments.
The performance of the consumer and manager is much at odds with what they say
is their economic view.
The return of these sentiment indicators nearly to pre-collapse
levels combined with the massive fiscal and monetary stimulus packaged enacted
in the industrialized countries has convinced many equity traders and commentators
that the recession has or will shortly ebb and growth is soon to revive. The
problem with this scenario is that there are no substantive indicators that
agree with the diagnosis.
In August of last year the University of Michigan
overall consumer confidence number registered 63, in September the month of the
Lehman bankruptcy, it was 70.3. These reading were down from occasions in the
low 90s in the early part of 2007. In May of this year confidence had recovered
to 68.1 from the mid-50s post collapse; this is the highest indication after
The â€˜expectationsâ€™ section of the survey experienced a
similar rebirth. From 67.2 in September 2008 it fell to a low of just over 50
in February before recovering to 69.4 in the month just past.
The â€˜current conditionsâ€™ reading also improved but less than
the others. It was 71 in August 2008, 75 in September, suffered a low in November
of 57.5 and recovered to 68.3 in April of this year followed by a drop to 67.7
from the Conference Board show a similar progression. The overall number was
58.5 last August, 61.4 in September and 54.9 last month. The â€˜expectationsâ€™ component
was 54.1 last August, 61.5 in September, 51 in April 2009 and 72.3 in May. And as with the Michigan survey, â€˜current conditionsâ€™ was
the most problematic. It was 65 in August
of last year, 61.1 in September, reached a low of just below 22 in March of
this year and by May had regained only 28.5.
The pattern is fairly uniform. A reviving â€˜expectationsâ€™
component pulls the overall reading higher, while the â€˜current conditionsâ€™
component is weak, or as in the Conference survey, barely in recovery at all.
The ISM results are similar. The manufacturing survey
registered 49.9 in August 2008, 43.4 in September and by May had recovered to
42.8 from the mid 30s in February and March.â€˜New ordersâ€™ were the most buoyant scoring a mildly expansionary 51.1 in
May, above the 48.2 reading of last August and the sub 30 low of last November.
The non-manufacturing survey composite was 50.4 in the month
before the crash, 50 in September, reached a low of 37.4 last November and had
regained 44.0 last month. â€˜New ordersâ€™ were 49.5 in August, 50.6 in September,
dropped to a bottom on 35.6 in November and had bounced to a still contracting
level of 44.4 in May.
But these sentiment numbers have not translated into
consumer spending or industrial activity.It is as if everyone is saying. Yes, things are better, but I am not spending,
I am saving more and I am worried about my job.But if you are asking, yes the overall economy has improved since last
Consumer credit, personal expenditures, industrial production,
and capital utilization remain firmly in recessionary territory.
Consumer deleveraging continues apace.Last September American consumers added $6.98
billion in debt to their portfolios.The
three month moving average for consumer credit was $3.436 billion in August
2008 and $2.886 in September.In April
of this year consumer credit contracted $15.7 billion; in March Americans
subtracted $16.5 billion from their debt. The three month moving averages for
these months were -$14.366 billon and -$7.533 billon respectively.
Personal expenditures have declined in six of the past eight
months from last September.The only
positive months were January and February of this year, when spending was prompted
by retailersâ€™ heavy post holiday discounts.In the eight months before September 2008 the ratio was exactly the
opposite, six positive months and two, July and August were negative.
The productive economy is even more depressed than the
consumer. Industrial production has been positive in only one month since the
beginning of last year, October 2008. Capacity utilization in April was 69.1%,
and has dropped even month since December 2007.
And consumers now have a new worry; US Federal deficits have
the potential to create an interest rate drag on future economic growth.
Government bond prices have fallen substantially since March
putting upward pressure on interest rates in the economy.On Friday the 10 year Treasury closed at
3.83% up more than 1.6% since March. 30 year mortgage rates near 5.4% are almost
0.5% higher than one month ago. Concomitantly the vast Federal funding needs have
begun to damage the dollar.The lower
the dollar goes the higher reach commodity prices fueling inflation. A sinking dollar driving up crude oil prices belongs
to the scenario that gave consumers $4 a gallon gasoline last summer. The Fed
will be very hard pressed to keep rates low enough to benefit consumer spending,
facilitate government debt sales and restrain fears of future inflation.
Considering the chasm that the world economy has fallen into
since last fall, some recovery in sentiment was inevitable.Catastrophe averted is better than
catastrophe endured but to borrow a phrase from Churchill, â€˜We must be very
careful not to assign to this deliverance the attributes of a victory. Wars are
not won by evacuationsâ€™.
I suspect that the relief that the world did not end last
fall and spring is coloring the expectations of consumers and managers
alike.Outlooks are much better; indeed
it would be hard to be much worse than the media coverage of the economy last
fall. But relief is not migrating from the mind to the pocketbook.More improvement will have to happen,
particularly in the job outlook, before the consumers again take up their
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