Consumer Confidence

One chart stands out in today's Breakfast with Rosie: the comparison of yesterday's surprisingly weak Consumer Confidence number with comparable prints taken at financial crises and tragedies of the past such as the October 1987 markets crash, Desert Storm, LTCM, the dot com collapse, September 11, Katrina, and Lehman. No surprise: yesterday's was the lowest. And as a reminder, the president's reelection campaign kicks into higher gear in a few months...against the backdrop of the most unhappy popular sentiment in recent years. Just how do QE 3 skeptics believe he will succeed, when still faced with consumer confidence that two years into the "recovery" is lower than during any other previous economic "expansion", even as congress is about to unleash the most brutal wave of fiscal consolidation (aka austerity) in recent American history.

Once again confirming that sentiment indicators are completely irrelevant and thoroughly misleading at best, we have the UMichigan consumer sentiment coming out at 69.6 compared to expectations of 68.8 and up from the March 67.5 print. This number is a rather stark contrast to the recently highlighted Gallup consumer confidence which plunged to August 2010 levels. And looking at current economic conditions index confirms that since 2010 the economy has gone precisely nowhere. But most notably, 1 year inflation expectations are still at the highest since 2008 at 4.6 unchanged M/M. All that of course is irrelevant as the algos just scanned the headline and go batshit, lifting every offer with gusto.

Please move along, no recovery to see here...

The Confidence Board has released its Consumer Confidence Number, which in March went in freefall from the revised previous print of 72, highest in 3 years, to a below consensus 63.4 (expectations of 65). But while this number is largely irrelevant, the Inflation Rate index surged from 5.5 to 6.7, the highest since October 2008.

While today's consumer confidence index missing expectations (at 67.5 or the lowest since April 2009) was not a big surprise following our prediction of just that happening when we reported that the Bloomberg Consuemr Comfort index hit a 7 month low, what was very disappointing was that the Expectations component had its fifth largest drop in history, plunging from 72 to 58. This is a lower reading than that recorded when the "recession", according to the NBER at least, was still raging. As a reminder the recession ended with "expectations" at 70.

After Gallup confirmed that the February NFP data was doctored just enough to allow the Fed to decide what to do with March employment data (should QE3 be determined necessary, look for a huge miss to expectations), today the polling company confirms that recent 3 year highs in consumer confidence were an inflection point. "Gallup's Economic Confidence Index worsened to -24 in February from -21 the prior month as Americans' optimism about the U.S. economy receded from a three-year high reached in January. Gallup's weekly economic confidence data show that consumer optimism hit a new weekly high in mid-February but fell sharply during the second two weeks of the month. As a result, the decline in optimism reported for the month is an average bolstered by relatively high confidence early in February. Recent events are not encouraging as far as the economy is concerned. Soaring gas prices, budget battles in Washington, D.C., as well as in many states, and recent declines on Wall Street suggest that Gallup's most recent weekly measure of -29 for the week ending March 6 may more accurately reflect current consumer confidence than February's monthly average." This is very surprising: don't consumer still not realize that the only thing that matters is core CPI, and that is indicating deflation is still a huge threat to Wall Street's record bonuses? What is just as surprising is that the deterioration in outlook was spread evenly across social classes, age groups and political affiliations.

It was just earlier this week that a bunch of irrelevant confidence trackers said that US consumer confidence had hit 3 year highs. Oddly enough, ground data not only does not confirm this data, but says it is merely more baseless propaganda. According to Gallup, which actually knows how to poll, "Americans have become much less confident in the U.S. economy over the
past two weeks, with Gallup's Economic Confidence Index falling from -18
to -30 during that span. The -18 Index score from two weeks ago was the
most positive Gallup had measured in the last three years." And as we suspected when we reported the latest confidence data "These results ... indicate the Thomson Reuters/University of Michigan Index of
Consumer Sentiment, released Friday but based mostly on interviewing
from early and mid-February, was essentially out of date when it was
released. The Index of Consumer Sentiment showed consumer confidence to
be the highest it has been since January 2008, similar to what Gallup
showed two weeks ago. But Gallup's latest weekly update suggests
consumer confidence has fallen back to where it was in early December." Luckily bad news no longer matters, because if it did Gallup's forecast would guarantee QE3,4, and so forth: "The short-term prospects for a turnaround in consumer confidence do not appear great, with gas prices likely to continue to rise, with state and federal governments facing increasingly difficult budget situations, and unemployment remaining high."

With the economy strong, EM underperforming, US yields rising, and no signal of QE2 being extended, USD could be poised to rally here. The recent breakout in USDJPY could signal a shift of carry funding back to the JPY, as the summer 2010 double-dip fear-induced USDJPY plunge is unwound.

Even as the conference board reported that US consumer confidence recently surged to fresh multi-year highs, on who knows what: presumably the fact that ever more Americans are happy that Ben Bernanke can manipulate the stock market higher, it has continued to plunge in the UK, a country which is identical to ours, except for all the pervasive data manipulation. As Bloomberg reports, "Polling firm GfK NOP Friday said its headline measure of consumer confidence fell to -29 in January from -21 in December to reach its lowest level in 22 months." And more: "According to GfK's survey, consumers became significantly more pessimistic about the outlook for the economy in the coming 12 months, much more downbeat about their personal financial prospects, and much more reluctant to make major purchases. "January's eight point drop represents an astonishing collapse in consumer confidence," said Nick Moon, managing director of GfK NOP Social Research. "In the 35 years since the index began, confidence has only slumped this much on six occasions, the last being in the midst of the 1992 recession." And all this happened even before snow caused the UK economy to enter official stagflation. This is simply an advance indication of what will happen in the US once the Fed stops monetizing in June (which it won't), and when the last remnants of the latest bout of fiscal stimulus finally disappear. Unfortunately the government's recent attempt to break the oil price surge, which is the biggest black eye in its attempt to reflate, will fail spectacularly once Egypt formally revolts at some point over the next 6-12 hours.

The market continues to putter along in the last trading week of a year that has thoroughly confused Money McBags like the subprime meltdown confused Ben Stein, the cosmological constant confused Einstein, or...

The December Consumer Confidence (Conference Board, not UMich) number misses expectations of 56.3 by a mile printing at 52.5. This is also a material drop from the November 54.3 print. On the very important topic of jobs, "Those saying jobs are "plentiful" decreased to 3.9 percent from 4.3
percent, while those stating jobs are "hard to get" edged up to 46.8
percent from 46.3 percent." And while this completely irrelevant data point (and how it could be down when the market is up is beyond is) is pushing stocks lower, elsewhere we see the Richmond Fed come way ahead of expectations, coming at 25 on expectations of 11. Nonetheless, since the recent weakness in other regional diffusion indices has been completely ignored in recent weeks, we see no reason why the market should suddenly pay attention to this traditionally secondary Fed indicator.

UMichigan consumer confidence came on top of expectations, at 74.5, a slight increase from the prior read of 74.2. Market snoozes as expected as nothing trades on news right now. The notable observation is that while the conditions component of 85.3 actually declined from prior (85.7) and missed expectations of 86, inflation expectations rose once again, with 1 year inflation rising from 2.9% to 3.0%, and the 5 year up from 2.7% to 2.8%. Perhaps cotton prices doubling in 2010 may actually not have a deflationary impact.

The propaganda crew is out in full force today, as virtually the entire growth in the confidence number was in expectations. We expect a presidential address on how Americans are delighted that Europe is disintegrating, that Ireland is on the verge of civil disobedience, that jobless benefits are expiring and that one can barter a roll of toiler paper for a house.

The biggest driver for today's stock market ramp, aside from the initial claims number which next week will be revised substantially worse, was the UMich Consumer Confidence index, which "beat" expectations of 69.5 coming at a five month of 71.6. The fact that a self-referential index can be market moving in the first place is mindboggling: this particular index is mostly driven by moves in the stock market, and any higher read in the index send the lithium addicted stock market higher, which in turn leads to a higher subsequent read in confidence and so on ad inf. This self-recursion probably explains why it is such a favorite of the Fed, which has now openly made clear that it will do anything to facilitate any and every ponzi component to the US economy, of which UMich is precisely one. Yet philosophical matters aside, what is most troubling is the ever increasing divergence between the UMich index on one hand, and another "confidence" index, which is far more comprehensive, far more exhaustive, and far more frequent in its polling: the weekly ABC Consumer Comfort index. If you have not heard of it before, it is precisely due to these three qualifications. And being far more indicative of the true state of how people perceive the economy, it is inevitable that there would be a massive divergence between UMich and the ABC indices. As the chart below demonstrates, this is precisely the case. While UMich is almost back to its December 2007 level, a reading that is so ridiculous when one considers that America now has 42 million people on foodstamps (and had under 28 million in Deceber 2007), the ABC index is now just 5 points away from its all time lows, and its yesterday print of -47 is the lowest it has been since August. All this begs the question: why does the market pretend to trade base off an index as discredited and flawed as the UMichigan Consumer Sentiment.

And with that the economic data barrage for the day is over and we can enjoy the calm before next week's storm: UMich consumer confidence comes at 67.7, missing expectations of a slight pick up to the prior 67.9. But what is most important is that the Hopium is finally wearing off: the Expectations component came at 61.9a large miss to both consensus and previous. Traditionally the "hope" component of confidence is what had consumers going. Not so much anymore. And indeed, the Conditions component rose from both expectations of 73.5 and the previous print of 73 to 76.6. Consumers no longer have much confidence in the future. Additionally, both 1 and 5 Year inflation expectations rose, to 2.7% and 2.8% respectively. Is the Fed succeeding in raising inflation expectations.