Final October tally shows drop in consumer sentiment
Filed under: Economy
It was a decent week for the U.S. economy: Q3 U.S. GDP growth totaled 3.5 percent – not robust, but above economists' expectations for the quarter and further evidence that the economic recovery is underway. However, consumer sentiment fell for the month.
The Reuters/University of Michigan Surveys of Consumers said that although its consumer sentiment index for October increased to a final reading of 70.6 from the 69.4 preliminary reading for the month, as Reuters reported Friday, it was down from the September reading of 74.0. The index hit a cycle low of 55.3 in November 2008 (its record low of 51.7 was set in May 1980).
A Bloomberg survey had expected a final index reading of 70.0 for October.
The index of consumer expectations declined to 68.6 from 73.5, while the current conditions index inched higher, to 73.7 from 73.4, Reuters reported.
Investors should pay attention to consumer sentiment because it usually precedes consumer decisions to buy (rising sentiment) or hold off purchases (falling sentiment) -- and, historically, consumer spending has accounted for the bulk (60 to 65 percent) of U.S. GDP.
Despite the lower reading, October's 70.6 consumer sentiment reading and roughly year-long, modest rise in the index is consistent with a U.S. economy that's recovering at a moderate pace -- a trend most economists say will continue. Housing sector stabilization, manufacturing output increases, a rise in imports, and government spending from the fiscal stimulus package will likely create enough momentum to pull the U.S. economy out of its worst recession in more than 25 years.
Also, the 3.5 percent Q3 U.S. GDP increase provided further evidence of this trend, and while it's only one-quarter's worth of information and not nearly enough to declare that the recession is officially over, the increase is consistent with the mild economic growth track.
Analysis: To be sure, caution remains the operative phrase among U.S. consumers. For the most part, the uncertainty is being driven by the enormous number of jobs the U.S. economy has lost in the past 20 months, and Americans' concern over the potential for additional cutbacks.
Consumers will not take their cue solely from the stock market's rise, or economists' outlook, or GDP data that indicates the economic recovery has started: they'll need to see tangible evidence that affects their lives -- namely, an end to job cuts and the resumption of monthly job gains with a declining U.S. unemployment rate. Historically, that's when Americans have relaxed, and started thinking about bigger purchases, such as a home improvement, a room addition, or a new car.
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Reader Comments (Page 1 of 1)
10-30-2009 @ 12:26PM
lou said...
Consumer confidence is down to 47.7 in October. Consumer sentiment is down at 70.6 for October. What is the difference between these two types of data? How does confidence and sentiment differ? Just curious.
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10-31-2009 @ 8:28AM
J. Skinner said...
Lou: it almost sounds the same. Consumer confidence is always given after the figures are in and represents spending that occured. Consumer sentiment is what's expected to be spent, how consumers feel going into a spending season.
So, two days ago I went to the store to get Holloween candy and generally if I go that the racks are near empty - consumer sentiment normally high for Holloween. However, my bet now is that consumers will have spent less showing consumer confidence will have slipped for Holloween.
I had a moment of panic realizing Holloween was this Saturday, but when I walked in and saw those bins and shelves fully stacked I had an ooh-ooh moment, so curious me will be looking for those numbers.
10-30-2009 @ 12:32PM
Iridium said...
Joe, I'll tell you what is going on in the real world.
People are feeling better because they have resolved to give up. Instead of living with the stress trying to keep a good credit score and pay bills on time, they have just given up.
They don't care about paying on time, they don't care about their credit score. Many consumers never paid a bill late, were responsible with their credit and got the shaft. After you are dragged by a bus for the crime of being responsible you just don't care to be anymore.
People all over the country are saying "Screw you Chase, BofA, Wamu. I'm not paying you anymore". They have decided that after seeing one or more family members laid off and their neighbor losing the house, paying back credit card debt isn't important. Saving money to pay the mortgage in the event you are laid off is more important.
These are not deadbeats. These are responsible middle class people. That is why the banks are so scared. There will be a record amount of credit defaults in 2010. People are just going to stop paying back debts they see as unfair.
When they saw their credit lines cut in half and interest rates raised to 29% while they were in good standing this year, it poisoned them against the major financial institutions. They'll say, "Fine you want to raise my rate to 29% from 9% for no reason, how about I choose to not pay you back for no reason." Why do I need a credit score anyway. When they make the choice not to pay, they feel much better.
That will be the beginning of the new revolution. I wonder if Wall Street will be able to handle that. Look at the bank sheets. It is already happening.
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11-02-2009 @ 9:50AM
Gypsy said...
10-4 to that
10-30-2009 @ 1:25PM
outandabout333 said...
I think people are worried aboout what is going to hit them next. Gas is slowly rising again. There is talk that electric rates are going to go through the roof as is food prices. Add to the increases expected from the health care bill fiasco and don't forget cap and tax. Consumers are being hit from all sides with more to come. No wonder they are not spending.
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10-30-2009 @ 1:42PM
nick said...
Joseph Lazzaro show some balls and report it like it is, don't surgar coat it like Obama owned AP does. The folks have no faith in this sucker and his merry man Biden. The guy hasn't a clue how to run the country, goes to DOVER AFB just for a photo op, can't have the balls to give the general the proper support, talking about a bum.
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10-30-2009 @ 4:41PM
Maureen Mower said...
I'm not at all surprised that the numbers are down. Until we start regulating gas prices - and stop allowing the refineries to falsely inflate prices by cutting production - no one is going to feel any confidence about spending money on anything other than bare necessities. $4 gas was not that long ago, so as the pump prices rise even while the price of oil is declining, American wallets are going to stay closed.
People are learning that they do not really "need" that new car, or the big screen tv, or a new purse to match every outfit, etc. What they do need is food (prices set to rise), shelter, utilities (prices rising), and gas in the car they already own to get to work (prices rising there too). Couple that with continued layoffs and too many people running out of unemployment benefits, and spending will continue to be stagnant, or drop like a stone.
Retailers better not expect any help over the holidays either. No one is buying gifts except where necessary (ie: for their own kids mostly), and they will be buying more from Walmart and discount stores than from Macy's or Sears.
It always amazes me that no one seems to connect the $4 gas prices with the collapse of the housing & stock markets. Sure there were a ton of bad loans and questionable financial instruments that created a "house of cards" - but it was the steady increase in gas prices that caused the wind that blew the house down.
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10-30-2009 @ 5:25PM
FOXYLYNX said...
I LIVE IN NY AND IF MY PROPERTY TAXES AND STATE AND FED TAXES AND ALL THE OTHER TAXES AND FEES AND MANDATES WEREN'T SO HIGH, I WOULD SPEND MORE. AS THINGS STAND, THE MORE I SPEND THE MORE MONEY I HAVE TO TAKE FROM MY DEFLATED 401K AND IF I TAKE OUT TOO MUCH I GO INTO ANOTHER TAX BRACKET - THIS KEEPS ME FROM SPENDING ALONG WITH THE VERY HIGH INTEREST RATE ON CREDIT CARDS. WE HAVE NO FAITH IN THE OBAMA SOCIALIST AGENDA AND WE KNOW OUR TAXES ARE GOING TO GO UP EVEN MORE. WHY SPEND IN THIS ENVIRONMENT. IT ALMOST LOOKS LIKE THEY WANT TO DESTROY THE MIDDLE CLASS AND THE DOLLAR.
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10-31-2009 @ 1:09PM
Tech said...
We are in the Great Depression 2. This time the banksters planned ahead installing Bush/Cheney 2000 and the endless "war on terror" baloney and a wierd police state to keep the people down as they get fleeced and starved. Unemployment is running higher and is really over 20% nationally. Our real economy was outsourced to Communist China and India while we are supposed to be the soldier botts enforcing their New World Order.(have you had their RFID tracking chip installed yet? Are they itchy?) Yeah, it's a quiet depression, people are killing themselves alone, no demonstrations allowed. Wait until 6 months from now or take a good look at Detroit once the powerhouse of America. Maybe when the globalist banksters have finished breaking and busting us down they will toss a few crumbs and rebuilda more sustainable world but I doubt it-they see people as only a cost on their balance sheets-a laiblity and would like to rid the world of most of us. Don't do business with the FED loan sharks, the banksters. Gold, silver, food, guns, a good dog, local credit unions, barter, store real tradable goods and in the cities that's gold, marijuana, cars, parts, guns, ammo, food,etc. the same as the country. Vote every politician out all the time and dump the FED/IRS scam and if your desperate take a ghoul out with you-the banksters elitists although they have armed security you wouldn't believe. Bush/Cheney was a junta and their big move, America is being destroyed. The dollar is the next big bubble and the main media is propaganda BS this is bad. Gold and silver have always been money and always will and I've lived through two currencies that died at GM Brazil in the 80's. It happens and oil backs the buck for now but not forever. The military occuppying the oil pools keeps it but we're running out of options and money. China and Japan got the best oil pools in Iraq.(wanted oil not our money)
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