U.S. Economy: Consumer Confidence Leaps, House-Price Drop Slows

[wilheim]

Bloomberg.com

By Shobhana Chandra and Courtney Schlisserman
April 28 (Bloomberg) -- Consumer confidence in the U.S. jumped by the most since 2005 this month as stocks rallied, mortgage rates dropped and Americans anticipated more jobs would become available.

The Conference Board’s sentiment index rose more than forecast to a five-month high of 39.2. A separate report showed the decline in home prices in 20 U.S. cities slowed in February for the first time since 2007, with the S&P/Case-Shiller index posting an 18.6 percent drop from the same month a year before.

“There certainly is starting to be a shift here, where the data is either less bad or even starting to improve,” Michael Darda, chief economist at MKM Partners LP in New York, said in an interview with Bloomberg Television. While “we certainly haven’t turned the corner yet” the economy “could bottom out between June and October of this year and then start” growing.

Stocks erased losses and Treasuries slid after today’s reports signaled the grip of the recession is loosening. The gain in confidence raises the odds that recent gains in consumer spending, which accounts for 70 percent of the economy, will be sustained.

Today’s Conference Board report parallels figures from public-opinion polls that show for the first time in four years most Americans say they believe the U.S. is going in the right direction.

Right Track

An AP-GfK poll earlier this month found 48 percent said the nation is on the right track and 44 percent said the U.S. is headed in the wrong direction. President Barack Obama’s ratings have also climbed, with most approving of his job performance.

The Standard & Poor’s 500 index was little changed at 857.69 at 11:42 a.m. in New York after dropping as much as 1.2 percent earlier. The yield on the 10-year Treasury note rose to 2.94 percent from 2.91 percent late yesterday.

The 500 Index is poised for its first two-month advance in a year, with the rally led by industries most reliant on economic growth. Shares of banks and brokerages in the index added 70 percent since a March low, while a group of retailers, automakers and restaurant chains climbed 41 percent, industrial companies surged 40 percent and raw-materials producers increased 35 percent, according to data compiled by Bloomberg.
Amazon.com Inc., the world’s biggest Internet retailer, posted a jump in first-quarter sales and profits, bolstered by free shipping offers.

Restaurant chains Cheesecake Factory Inc. and Yum! Brands Inc. reported quarterly income that fell less than analysts forecast.

Economists’ Forecasts

Confidence was projected to rise to 29.7, from an originally reported 26 in March, according to the median estimate in a Bloomberg News survey of 62 economists.

The Conference Board’s measure of present conditions rose to 23.7 from 21.9 the prior month. The gauge of expectations for the next six months surged to 49.5, the highest level since the collapse of Lehman Brothers Holdings Inc. in September, from 30.2 last month.

The share of consumers who said more jobs will be available in the next six months gained to 13.9, the most since June 2007.

The outlook for current employment was more mixed. Fewer Americans said jobs were plentiful, at the same time those that said employment was hard to get also dropped.

“Consumers believe the economy is nearing a bottom,” Lynn Franco, director of the Conference Board’s consumer research center, said in a statement. Still, the index “remains well below levels associated with strong economic growth.”

Lehman Impact

Today’s confidence figures corroborate other reports. The Reuters/University of Michigan preliminary index of consumer sentiment rose for a second month in April, advancing to the highest level since Lehman’s bankruptcy in September pushed the U.S. deeper into a slump.
Economists have said the Conference Board’s index tends to be more influenced by attitudes about the labor market.

The economy has lost 5.1 million jobs since the recession began in December 2007. Economists surveyed by Bloomberg in early April predicted unemployment will rise to 9.5 percent by the end of the year.

At the same time, recent reports show efforts by Federal Reserve policy makers, who are meeting today and tomorrow, to support housing and revive lending may be starting to work. Combined purchases of new and existing houses have hovered around a 5 million annual pace since November, and sales at retailers improved in the first two months of the year.

Manufacturing in the region covered by the Richmond Fed contracted this month at the slowest pace since May 2008, the bank reported today.

Credit Markets

The Libor-OIS premium that indicates banks’ reluctance to lend to each other fell to 0.84 percentage point today, the lowest level since before Lehman collapsed in September, according to data compiled by Bloomberg.
In a sign the plunge in car sales may be easing, AutoNation Inc., the largest publicly traded U.S. car retailer, this month reported a smaller-than-expected drop in first-quarter earnings.

“We saw in the first quarter the first signs of stabilization,” Chief Executive Officer Mike Jackson said in an interview on April 23. Sales improved in the last 10 days of March as banks offered better lending terms, he said.

The average rate on auto loans is 2.67 percentage points above one-month Libor. While that is more than the average of 1.84 percentage points over the past decade, it’s down from about 8 percent in December.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

Last Updated: April 28, 2009 11:44 EDT

 

[letsgohoosiers]

We are nearing the end of the sub-prime crisis. Foreclosures have gone down since 2008. That would be good news, but anyone who knows anything about mortgages knows the ALT-A resets are coming, then the option ARMs. Mortgages aren't going to stop resetting until 2012.

 

[Willie99]

As soon as the people realized the economy was not collapsing, and the "vastly overwhelming" (emphases on way more than not) majority of them are still working, consumer confidence had no place to go but up. I have predicted that this had to and was going to happen all along.

That's a good thing, since consumer confidence is the most important economic variable, IMHO. It actually may be the only important economic variable, and everything else is impacted by it.

 

[Kornholio]

False hope. Consumer confidence means nothing. When you live beyond your means eventually the credit runs out. U.S. can't even afford the interest on their debt. China no longer sees U.S. debt as a good investment. They've stopped buying U.S. treasuries and are disposing of their USD assests. By the end of summer we are looking at possible 1000 billion of unbought debt. U.S. defaults on debts or just prints money causing hyperinflation.

Our banks did the same thing. Now they are in ruins. Consumer confidence won't fix a damn thing though it might perk things up for a couple of months. Dow might even hit 10K. But then...everything falls apart.

 

[rolltide]

wil, interesting you missed the much bigger news that our GPD dropped 6+ % in b2b quarters for the first time since 1958
consumer confidence is nothing but a poll. real stats show we're not in good shape which is shocking because we just threw a trillion into the economy.

 

[Willie99]

Consumer confidence is the single most important variable. If we spend money, the economy grows. If we stop spending money, we have a retraction. There is nothing Government can do to change that, except to impact how much money consumers may have to spend.

The vast majority of people are not over extended, the vast majority of people have not lost their jobs, so that over extended nonsense is mostly hyperbole.

Furthermore, even people that don't need credit or jobs have stopped spending because of fear mongering. There is not one business owner I know that doesn't think everybody should stop watching the news and simply live their lives, and I know a lot of business owners.

 

[rolltide]

Willi, consumer confidence is not the single most important variable...c'mon now

it's a POLL.

you can say that you feel better about the economy but that does not mean you're opening the wallet. Just because a few AP writers thought Pitt was #1 in the nation for 10 weeks, didn't make it real. Yet we go by the AP poll as the end-all of ranking basketball (yeah, off topic I know). There is massive decrease in almost all retail sectors right now and it's not because of fear mongering, it's because people have less money!

You're living under some strange thought that although approx 15-16% of Americans are either underemployed or unemployed things are fine because the other 85% are still working? Well, they may still be working, but companies are routinely cutting wages and hours which means less money in your wallet, thus less money to buy goods to boost the economy. This is NOT a media event it's real life. We decreased GDP 6.3% in q4 and another 6.1% in q1...first such instance in 51 years. Any this is due to fear mongering? c'mon willie, you're better than that

I am a business owner and I've seen a drastic reduction in activity since late October. A year ago I was turning away business because I was simply too busy with core customers. My production was at an all-time high but production is way down now, so my revenue is way down. This is not because the media is telling me the country is in a recession. Real life, Willie. One of my major customers is a $3B company that is currently furloughing their employees 1 week/month. That means every employee just took a 25% wage cut. They had no choice but to either do this, or lay off a massive amt of their work force. why? because their revenues are shit and they're trying to survive. It's not turning around today because consumer confidence supposedly LEAPS from last month. That's a complete friggin joke and a total fallacy.

decent article below...although you won't agree :toast:


The dangerous fallacy that consumer confidence drives economic growth


Gerard Jackson
BrookesNews.Com
Monday 23 June 2007
As members of the economic commentariat financial journalists are expected to know what they are talking about when they write on economics. Unfortunately such expectations are doomed to be confounded. If it were otherwise these commentators would have long ago abandoned the dangerous fallacy that “consumer sentiment” is the economy’s driver that raises spending, forces businesses to fill their order books, invest in new plant and employ more people. In short, we are right back to the mercantilist fallacy that consumption drives the economy.
That this ridiculous fallacy is still widely held and promulgated is a damning indictment of the appalling state of what passes for economic thought in our newspapers and business magazines — not to mention our universities and colleges. It certainly reflects badly on the intelligence of these financial writers that they are intellectually blind to the fact

that consumption is posterior to production, as it is impossible to consume what is not produced. Consumption in the necessary order of things is the effect of production, not production the effect of consumption. (James Stuart Mill, Commerce Defended, C. and R. Baldwin, 1808, p. 79).
​

Clearly our modern economists are unable to grasp the fundamental truth that “‘Consumption’ is...the extermination of power to demand”. (W. H. Hutt, A Rehabilitation of Say’s Law, Ohio University Press, 1974, p. 90). Therefore consumption grows out of production and not the reverse. This is why the great consuming nations are also the great producing nations. You cannot consume what has not been produced. “Ah!”, our consumptionists would exclaim, “but increased spending leads to greater demand for inventories and encourages investment and employment and hence stimulates growth”. Not true. If this were so economic growth would not have opportunity costs. In other words, growth would not require savings.
Economic growth consists of increasing investment in the capital structure. For the structure to expand by adding more and more complex stages more savings are needed. Now capital goods are future goods which are, in a sense, converted, into present goods (consumption goods) during the production process. It follows that present goods are savings that are converted into future goods. Another way of putting this is to say that savings are spent in a way that directs production from present consumption to greater future consumption.
The effect of increasing genuine savings and therefore growth is to investment in more roundabout processes that increase productivity and by doing so raise the value of the workers’ marginal product and hence their real wages. The reverse is equally true. And this is what John Stuart Mill meant when he wrote that

I apprehend, that if by demand for labour be meant the demand by which wages are raised, or the number of labourers in employment be increased, demand for commodities does not constitute demand for labour. I conceive that a person who buys commodities and consumes them himself, does no good to the labouring classes; and that it is only by what he abstains form consuming, and expends in direct payments to labourers in exchange for labour, that he benefits the harbouring classes, or adds anything to the amount of their employment”. (John Stuart Mill, Principles of Political Economy, University of Toronto Press, 1965 p. 80)
​

Therefore consumer spending can do nothing to raise real wages because it does nothing to increase productivity. This can be illustrated by what would happen to an advanced country that embarked on a process of dissaving (capital consumption): initially rates of return would increase in the consumer goods industries (the lower stages of production) and fall in the producer goods industries (the higher stages of production); the higher stages of production would start disinvesting and the lower stages would start expanding relative to the capital goods’ industries; productivity would slow and so would the growth in real incomes; eventually, the economy would regress and real incomes and living standards would fall. All because the country had swallowed the myth that consumption was the real road to prosperity.
It is a disgrace that so many commentators have lost sight (that is if they ever saw it) of the basic economic fact that only production can give rise to consumption. The logic of this statement leads to the vital conclusion that savings fuel the economy while entrepreneurship drives it. Despite the obvious importance of this issue our economic commentariat adamantly refuse to debate it. Gerard Jackson is Brookes’ economics editor

 

[Ricboff]

Willi, consumer confidence is not the single most important variable...c'mon now

it's a POLL.

you can say that you feel better about the economy but that does not mean you're opening the wallet. Just because a few AP writers thought Pitt was #1 in the nation for 10 weeks, didn't make it real. Yet we go by the AP poll as the end-all of ranking basketball (yeah, off topic I know). There is massive decrease in almost all retail sectors right now and it's not because of fear mongering, it's because people have less money!

You're living under some strange thought that although approx 15-16% of Americans are either underemployed or unemployed things are fine because the other 85% are still working? Well, they may still be working, but companies are routinely cutting wages and hours which means less money in your wallet, thus less money to buy goods to boost the economy. This is NOT a media event it's real life. We decreased GDP 6.3% in q4 and another 6.1% in q1...first such instance in 51 years. Any this is due to fear mongering? c'mon willie, you're better than that

I am a business owner and I've seen a drastic reduction in activity since late October. A year ago I was turning away business because I was simply too busy with core customers. My production was at an all-time high but production is way down now, so my revenue is way down. This is not because the media is telling me the country is in a recession. Real life, Willie. One of my major customers is a $3B company that is currently furloughing their employees 1 week/month. That means every employee just took a 25% wage cut. They had no choice but to either do this, or lay off a massive amt of their work force. why? because their revenues are shit and they're trying to survive. It's not turning around today because consumer confidence supposedly LEAPS from last month. That's a complete friggin joke and a total fallacy.

decent article below...although you won't agree :toast:


The dangerous fallacy that consumer confidence drives economic growth


Gerard Jackson
BrookesNews.Com
Monday 23 June 2007
As members of the economic commentariat financial journalists are expected to know what they are talking about when they write on economics. Unfortunately such expectations are doomed to be confounded. If it were otherwise these commentators would have long ago abandoned the dangerous fallacy that “consumer sentiment” is the economy’s driver that raises spending, forces businesses to fill their order books, invest in new plant and employ more people. In short, we are right back to the mercantilist fallacy that consumption drives the economy.
That this ridiculous fallacy is still widely held and promulgated is a damning indictment of the appalling state of what passes for economic thought in our newspapers and business magazines — not to mention our universities and colleges. It certainly reflects badly on the intelligence of these financial writers that they are intellectually blind to the fact

that consumption is posterior to production, as it is impossible to consume what is not produced. Consumption in the necessary order of things is the effect of production, not production the effect of consumption. (James Stuart Mill, Commerce Defended, C. and R. Baldwin, 1808, p. 79).
​

Clearly our modern economists are unable to grasp the fundamental truth that “‘Consumption’ is...the extermination of power to demand”. (W. H. Hutt, A Rehabilitation of Say’s Law, Ohio University Press, 1974, p. 90). Therefore consumption grows out of production and not the reverse. This is why the great consuming nations are also the great producing nations. You cannot consume what has not been produced. “Ah!”, our consumptionists would exclaim, “but increased spending leads to greater demand for inventories and encourages investment and employment and hence stimulates growth”. Not true. If this were so economic growth would not have opportunity costs. In other words, growth would not require savings.
Economic growth consists of increasing investment in the capital structure. For the structure to expand by adding more and more complex stages more savings are needed. Now capital goods are future goods which are, in a sense, converted, into present goods (consumption goods) during the production process. It follows that present goods are savings that are converted into future goods. Another way of putting this is to say that savings are spent in a way that directs production from present consumption to greater future consumption.
The effect of increasing genuine savings and therefore growth is to investment in more roundabout processes that increase productivity and by doing so raise the value of the workers’ marginal product and hence their real wages. The reverse is equally true. And this is what John Stuart Mill meant when he wrote that

I apprehend, that if by demand for labour be meant the demand by which wages are raised, or the number of labourers in employment be increased, demand for commodities does not constitute demand for labour. I conceive that a person who buys commodities and consumes them himself, does no good to the labouring classes; and that it is only by what he abstains form consuming, and expends in direct payments to labourers in exchange for labour, that he benefits the harbouring classes, or adds anything to the amount of their employment”. (John Stuart Mill, Principles of Political Economy, University of Toronto Press, 1965 p. 80)
​

Therefore consumer spending can do nothing to raise real wages because it does nothing to increase productivity. This can be illustrated by what would happen to an advanced country that embarked on a process of dissaving (capital consumption): initially rates of return would increase in the consumer goods industries (the lower stages of production) and fall in the producer goods industries (the higher stages of production); the higher stages of production would start disinvesting and the lower stages would start expanding relative to the capital goods’ industries; productivity would slow and so would the growth in real incomes; eventually, the economy would regress and real incomes and living standards would fall. All because the country had swallowed the myth that consumption was the real road to prosperity.
It is a disgrace that so many commentators have lost sight (that is if they ever saw it) of the basic economic fact that only production can give rise to consumption. The logic of this statement leads to the vital conclusion that savings fuel the economy while entrepreneurship drives it. Despite the obvious importance of this issue our economic commentariat adamantly refuse to debate it. Gerard Jackson is Brookes’ economics editor

good post. I stopped reading after the chap said, "Consumer confidence is the single most important variable", -- Maybe he doesn't understand that its a poll? good grief

note that real gross domestic purchases in the US (purchases of goods/services wherever produced by US citizens) decreased 7.8 % in the first qtr, compared to a fall of 5.9% in the 4th qtr.

 

[Willie99]

"Consumer confidence is a poll"?

well, they do poll consumer confidence, but consumer confidence is not a poll. Big difference.

Now you can choose to say the poll is inaccurate, but I rely on more than just a poll to make my judgment. Business owners will tell you that the phones stopped ringing Sept / Oct 08, business just stopped. Business remained dead throughout the winter months. However, some businesses have become busy, builders & remodelers & roofers will tell you they are starting to give out more quotes and realtors say their phones are starting to ring again.

No, consumer confidence is not a poll, it's a state of mind. If we have it, we tend to spend more. If not, we tend to spend less. It's not rocket science boys.

PS: Rolltide, you were right, I don't agree with the author you cited. Seems to me he ties himself up in knots trying to explain why the obvious is not obvious. One thing he is blatantly wrong about, not everybody gives consumer confidence the importance I do.

BTW: I don't think things are peachy keen, there are always weaknesses and concerns. I do believe we're just going through another cyclical retraction. It's also important to note that conditions vary in different regions, with your region being one of the hardest hit.

And that sports analogy just doesn't work my friend.

 

[rolltide]

"Consumer confidence is a poll"?

well, they do poll consumer confidence, but consumer confidence is not a poll. Big difference.


No, consumer confidence is not a poll, it's a state of mind.

sorry willie but you are simply wrong here...see below

you want TRUE consumer confidence don't ASK people just look at the stats. Are they buying new cars? new homes? new TV's? retail?

your "single most important variable" claim is not founded on anything. it truly is like equating that whoever the AP believes is the best team in the country is truly the best team in the country. It's simply extrapolating what 5000 people said to mean that 300 million of us agree, and we don't even need to act on our response (i.e. go out and actually buy something)

The Conference Board Consumer Confidence Index™, which had posted a slight increase in March, improved considerably in April. The Index now stands at 39.2 (1985=100), up from 26.9 in March. The Present Situation Index increased to 23.7 from 21.9 last month. The Expectations Index rose to 49.5 from 30.2 in March.
The Consumer Confidence Survey™ is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world's largest custom research company. The cutoff date for April's preliminary results was April 21st.

next....

Calculation
In simple terms, increased consumer confidence indicates economic growth in which consumers are spending money, indicating higher consumption. Decreasing consumer confidence implies slowing economic growth, and so consumers are likely to decrease their spending. The idea is that the more confident people feel about the economy and their jobs and incomes, the more likely they are to make purchases. Declining consumer confidence is a sign of slowing economic growth and may indicate that the economy is headed into trouble.
Each month The Conference Board surveys 5,000 U.S. households. The survey consists of five questions that ask the respondents' opinions about the following:

1. Current business conditions
2. Business conditions for the next six months
3. Current employment conditions
4. Employment conditions for the next six months
5. Total family income for the next six months

finally...

What it Means for Investors
A strong consumer confidence report, especially at a time when the economy is lagging behind estimates, can move the market by making investors more willing to purchase equities. The idea behind consumer confidence is that a happy consumer - one who feels that his or her standard of living is increasing - is more likely to spend more and make bigger purchases, like a new car or home.

It is a highly subjective survey, and the results should be interpreted as such. People can grab onto a small situation that garners a lot of mainstream press, such as gas prices, and use that as their basis for overall economic conditions, fair or not. There are no real data sets here, and people are not economists, so they cannot be counted on to realize that, for example, because gas prices may only represent 5% of their expenses, they should not sour their entire economic outlook.

Because of its subjective nature and relatively small sample size, most economists will look at moving averages of between three and six months for consumer confidence figures before predicting a major shift in sentiment; some also feel that index level changes of at least five points are necessary before calling for the reversal of an existing trend. In general, however, rising consumer confidence will trend in line with rising retail sales and, personal consumption and expenditures, consumer-driven indicators that relate to spending patterns.

 

[Willie99]

Roll, nothing in your post proves I'm wrong, although it may question the accuracy of what they call a subjective poll.

Stated differently, I'm debating the value of an economic variable, you're debating the measurement of such variable.

 

[Mistermj]

Anybody that thinks we have worked our way through any of this isn't paying attention.

We could have worked through the Bush deficits.

But Obama decided to triple it...

Libs used to call it the end of the world under Bush's smaller defecits...now they call it stimulus when it's tripled...LOL.

Just cuz it bounced...it's still a dead cat.

 

[TomKing]

One question no one wants to ask or answer:

As the US federal debt reaches $17T in 2004, who, how, and when is that debt going to be paid off?

(how much money is that? it is roughly $57,000 a person for 300,000,000 people)

 

[quantumleap]

No, consumer confidence is not a poll, it's a state of mind. If we have it, we tend to spend more. If not, we tend to spend less. It's not rocket science boys.

Not necessarily. People can have confidence but if they don't have as many jobs or have pay cuts they don't spend as much. A desperate person is more likely to grasp at straws to think the economy is better.

 

[Mistermj]

Obviously people haven't taken the time to actually comprehend our future.

Maybe they just need to see the visual...it makes Bush look like a tightwad spendthrift.

 

[barman]

One question no one wants to ask or answer:

As the US federal debt reaches $17T in 2004, who, how, and when is that debt going to be paid off?

(how much money is that? it is roughly $57,000 a person for 300,000,000 people)

I'm not real knowledgeable on this topic.

But I am knowledgeable about many of the posting patterns of RxForum friends. And as I recall PoliticoPubster MISTER MJ spent most of 2008 reminding us that the national debt is really not that big a deal, most often as a rebuttal to those who complained about the level of debt laid by the Bush administration during their tenure.

 

[Ricboff]

That's a good thing, since consumer confidence is the most important economic variable, IMHO. It actually may be the only important economic variable, and everything else is impacted by it.

okay, fair enough.

Consumer confidence has recently exploded, the biggest jump since 2005 (as per article). Going forward, what are we to extrapolate from that, given as you note its the most important economic variable?


- firstly and most importantly, the GDP number for the 2nd qtr will show improvement as compared to the first-- logically, it must. Because the single most important economic variable has changed to the upside, in dramatic fashion---people are spending
- we have reached the bottom of this cycle, a new bull market has formed ( the Fed appears hesitant, he's still battling the bond market, a battle he will lose, yields aren't going as planned )
- go long on the market for 2nd qtr, at least discretionaries


no?

 

[Willie99]

What we can conclude is that consumers will start spending money, and this is a must for our economy to grow. The significant retraction of recent months is due in large part because people stopped spending money.

Spending came to an absolute stand still last fall as individuals overreacted.

I've never pretended to have a crystal ball, and I know every economic indicator has been proven wrong sometimes. There is not one individual in the world that knows what's going to happen all the time. It's almost like gambling, if you hit 58% you're awesome.

 

[Willie99]

I'm not real knowledgeable on this topic.

But I am knowledgeable about many of the posting patterns of RxForum friends. And as I recall PoliticoPubster MISTER MJ spent most of 2008 reminding us that the national debt is really not that big a deal, most often as a rebuttal to those who complained about the level of debt laid by the Bush administration during their tenure.

A Nation's debt is a lot like a family's mortgage. The higher the GNP, or household income, the more debt the entity can afford to service. If the economy is growing, the debt can grow (at reasonable levels).

I always maintained that we should reduce the debt, but as long as the economy grows we'll be able to service the debt. Even under Bush, if the economy slowed the debt becomes a bigger problem.

Obama just exploded the debt in 100 days, and the economy is in retraction. That is just not a good combination of events. Since the whole world is invested in our economy, I think everyone will be inclined to work together make things work out somehow, but it's not a healthy trend.

Watch what happens to the economy if he tries to increase taxes to reduce the deficit, it won't be pretty.

 

[Kornholio]

Willie, the debt can grow...until it is quit being bought. That is the issue. And That is what is starting to happen as China no longer sees buying U.S. treasuries as a safe investment. The feds will just print money and the dollar will collapse if this happens. They got us by the balls.