Friday, May 11, 2007

Consumer Confidence is Iffy

From the AP

"Consumer confidence appears to be spinning its wheels," observed Richard Yamarone, economist at Argus Research.

"Although employment is mostly stable, there are many uncertainties on the horizon," Yamarone said. "Will energy prices go even higher? How is the housing slump going to play out? It is the fear of the unknowns that is coloring peoples' feelings."

Those fears were a factor in the big drop in peoples' feelings about how the economy and their own finances will fare over the next six months. This expectations measure fell to 24.3, a nine-month low. In April, this gauge stood at 41.7.

I'm usually not a big fan of sentiment readings because I'm pretty skeptical about survey research in general.

However, The two questions regarding energy prices and housing are very important right now.

1.) We've had about a year of bad housing news. While a person can dismiss a few months as a temporary blip, a year is a trend. In addition, most people are probably seeing this first hand. For example, I walk my dogs in my neighborhood every day. The same houses have been on the market for at least 4 months and in some cases longer. The number of vacant houses has increased from 1 at the end of last year to 4 now. There have been two foreclosure sales in the last two months. While this is anecdotal information about a small neighborhood in Houston, Texas, the macro-level numbers indicate it is happening all over the country. At some point the sheer weight of this news starts to sink in.

2.) I've written a great deal about gas prices this spring and will continue to do so. Gas prices are spiking before the summer. While we expect price hikes throughout the summer peaking in August/September, we're seeing these spikes in April and May. Again in casual conversation I have with friends, gas prices are coming up more and more. Bonddad's girlfriend fills up her car whenever she sees cheap gas (one of the many reasons I love her is she is an incredibly smart shopper). Consumers see gas prices everyday and have to pay them at least once a week if not twice. As a result of actual experience, consumers may be curbing purchases of non-essentials because the cost of essentials (energy) is rising and the source of a great deal of recent cash (home equity withdrawals) is disappearing.

The point of all this is simple: consumers have a legitimate concern about the future right now.