Economists say Consumer Confidence is Up, Consumers say Different...

Mish Shedlock |

Economists were way off on their predictions of consumer confidence. Consider the Bloomberg Consensus Estimate for Consumer Confidence, below:

Consumer_Confidence_Level.jpg
 Consumer confidence has fallen back noticeably this month, down more than 6 points to a much lower-than-expected 95.2. This compares very poorly with the Econoday consensus for 103.0 and is even far below the Econoday low estimate of 100.5. The weakness, ominously, is the result of falling assessments of the jobs market, both the current jobs market and expectations for the future jobs market. The second quarter, which is expected to be much stronger than the weather-depressed first quarter, isn't likely to get off to a fast start, at least as far as this report goes.

The most striking weakness in April is the assessment of future conditions with the expectations component down 8.5 points to 87.5 for the weakest reading going all the way back to September. And the most striking weakness among the sub-components is employment, where fewer see more jobs opening up 6 months from now and more see fewer jobs available. This spills over into income where fewer see an increase ahead and more see a decrease.

But also weak is the present situation component which is down more than 2-1/2 points to 106.8 for its weakest reading since December. Here the most closely watched sub-component is the jobs-hard-to-get reading which is up nearly 1 full percentage point to 26.4 percent. This reading will hold back expectations at least to some degree for a big bounce back in the April employment report from a very weak March.

Inflation expectations are down sharply this month, 4 tenths lower to 4.8 percent which is one of the lowest readings of the recovery. Gas prices have been edging higher but are still low, the latter no doubt a major factor behind the latest reading.

Buying plans are mixed with automobile and vacation plans down but not home plans which are up. But home buying won't be a featured activity for consumers if their expectations for employment are weak. Today's report, showing weakness in the jobs assessment and in inflation expectations, won't be pulling forward expectations for the Federal Reserve's first rate hike.

Financial Experts Missing the Boat

Not only was the consensus outside the range of reading predictions, economists did not even get the leading sign correct. Economists predicted an improvement from 101.3 to 103.0, but instead the index plunged 7.6%. For more details let's turn to the actual University of Michigan Survey.

University of Michigan Preliminary Results May 2015

U_of_M_Preliminary_Results.jpg

Comments by U of M Chief Economist Richard Curtin: 

 Confidence fell in early May as consumers became increasingly convinced that there would be no quick and robust rebound following the dismal 1st quarter (even if the under performance was exaggerated by inadequate seasonal adjustments). The decline was widespread among all age and income subgroups as well as across all regions of the country. In contrast to last year's rapid 2nd quarter revival, this year the economy faces reduced production and employment from lower oil prices, falling exports, and rising imports from a stronger dollar. Although this was not the first time in recent years consumers have abandoned expectations for a faster recovery, the data nonetheless suggest that consumers have remained optimistic about their future personal finances and have maintained their buying plans at reasonably high levels. Overall, at this time the data are still consistent with a 3% growth rate in real personal consumption expenditures during 2015.

Confidence & Nonsense

I believe that statement by Curtin is complete nonsense. Consumers have not maintained their buying plans, at least according to Fed surveys.

Household Spending

But what about household spending? Please check out my May 12 report Household Spending Growth Expectations Plunge; Recession Already Started?

Household Spending Expectations

I created the chart below with data from "Fed does a Survey of Consumer Expectations":

One_Year_Ahead___Household_Spending.jpg

Spending Analysis

In spite of rising earnings and income estimates, "median household spending growth expectations retreated significantly from the last month" in the Fed's words.
Recession Likely Underway

Economists were surprised by the dismal retail sales report this morning. That's not surprising, because economists are nearly always surprised.

The Bloomberg Consensus retail sales estimate was a rise of 0.2%, but sales came in at 0.0% and the details were ugly.

Estimated Retail Sales

The Census Department offers this Table of Retail Sales

Table_of_Retail_Sales.jpg

Note the huge patch of negative numbers this month. At least people are still eating out and drinking more.

Also, note the negative numbers in the November 2014 through January 2015 column. Economists expected the decline in gasoline sales (down 7.2%) to translate into increased sales elsewhere. It didn't. 

I am scratching my head over Bloomberg's statement "consumer confidence may be strong ...". What the heck is Bloomberg talking about? Does Bloomberg even read its own numbers? Here is a snip from the Bloomberg Consumer Confidence Level Report for April 2015, released on 4/28/2015: 

 Consumer confidence has fallen back noticeably this month, down more than 6 points to a much lower-than-expected 95.2. This compares very poorly with the Econoday consensus for 103.0 and is even far below the Econoday low estimate of 100.5. The weakness, ominously, is the result of falling assessments of the jobs market, both the current jobs market and expectations for the future jobs market. The second quarter, which is expected to be much stronger than the weather-depressed first quarter, isn't likely to get off to a fast start, at least as far as this report goes.

The most striking weakness in April is the assessment of future conditions with the expectations component down 8.5 points to 87.5 for the weakest reading going all the way back to September. And the most striking weakness among the sub-components is employment, where fewer see more jobs opening up 6 months from now and more see fewer jobs available. This spills over into income where fewer see an increase ahead and more see a decrease.

But also weak is the present situation component which is down more than 2-1/2 points to 106.8 for its weakest reading since December.

The Fed is not looking at those numbers, either. In the latest FOMC report the Fed specifically stated "consumer sentiment remains high".

Autos Only Reason Year-Over-Year Sales Are Positive

Retail_Sales_Graphs.jpg

Autos are now the only thing keeping retail sales positive year-over-year. And auto sales are driven by subprime loans. How long is this party going to last? Who wants a car, needs a car, can afford a car, and can get a car loan?

Retail Sales Flashbacks

Consumers Did What They Said They Would Do

In a huge shock to economists, consumers actually did what consumers said they would do, rather than what economists models predicted. And economists still don't believe it. They are looking for three percent growth this year, whereas I think the US is in recession. 

For more of Mish's insights and opinions on markets in the US and across the globe, follow this link to Mike Shedlock’s blog

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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