Consumer Confidence

The Bloomberg Consumer Comfort Index was minus 47.6 in the period to July 31, the lowest since May, compared with minus 46.8 the prior week. Two of the comfort index's three subcomponents declined last week. The measure of personal finances fell back into negative territory after two weeks of positive readings. The buying climate index fell to the lowest level since early June. The gauge of Americans' views of the economy, which is the difference between those with positive versus negative opinions, rose to minus 86.5 from a more than two-year low. Even here, the news wasn't good. Fifty percent of respondents gave the economy a poor rating, the worst of four categories. That's the highest share in more than a year.

Scanning Real Estate

Activity in the real estate (RE) market is a good reflection of consumer sentiment. RE is the most sought after, and government encouraged, purchase American's can make. As a homeowner, people become consumers of big ticket sales and the country's GDP perk's up and stays there. For me to believe the signals of economic recovery are getting solid, there will have to be several indications of consumer confidence surging. That is because consumer spending makes up nearly 70% of US GDP. This week there are a couple of encouraging reports on December starts of new housing (the start of construction of a new building intended primarily as a residential building) and existing home sales (the number of previously constructed homes, condominium and co-ops in which a sale closed during the month). These reports seem to signal still weak but improving single family sales in December. Low interest rates together with prices reflecting the weak market combined to close sales at a rate large enough to shrink the excess inventory balloon. Multi-family buildings were the driver for most of the increased building activity.

From Bloomberg regarding sales: Higher mortgage rates appear to have motivated buyers during December as existing home sales surged 12.3 percent to a higher-than-expected annual rate of 5.280 million (November revised 20,000 higher to 4.700 million). Details show even strength across regions and a big draw down in supply to 8.1 months from November's 9.5 months. Supply is the lowest its been since March. Home prices slipped in the month, down nearly one percent to a median $168,800.

From Bloomberg regarding building: Housing starts in December slipped back 4.3 percent, following a 3.8 percent rebound in November. The December annualized pace of 0.529 million units fell short of the median forecast for 0.550 million units and is down 8.2 percent on a year-ago basis. The reversal in December was led by a 9.0 percent drop in single-family starts, following a 5.8 percent gain the month before. The multifamily component rebounded 17.9 percent after declining 5.0 percent in November.
Housing permits, in contrast, made a 16.7 percent comeback in December after declining 1.4 percent in November. Overall permits posted at an annualized rate of 0.635 million units and are down 6.8 percent on a year-ago basis. The latest boost was led by the multifamily component which was up a sharp 53.5 percent while single-family permits improved 5.5 percent. However, the Commerce Department noted that building code changes took effect on January 1 in California, Pennsylvania and New York. In turn, some of the multifamily strength likely is due to construction companies getting approval before the tighter regulations.

University of Michigan Consumer Sentiment Survey

From Bloomberg...

Consumer sentiment edged back in the mid-February reading, down 7 tenths to 73.7 and failing to extend mild momentum that appeared in late January. The assessment of current conditions actually rose in the period but was offset by a dip in expectations which is the leading component for the report. The expectations index, at 66.9, is back to where it was in November. One-year inflation expectations edged back slightly to 2.7 percent. It's simple enough: Weakness in the jobs market will continue to contain consumer spirits. The news isn't helping the markets which are sinking in reaction to continued bank tightening in China.

Consumer sentiment is mainly affected by inflation and employment conditions. However, consumers are also impacted by current events such as bear & bull markets, geopolitical events such as war and terrorist attacks. Investors monitor consumer sentiment because it tends to have an impact on consumer spending over the long run (although not necessarily on a monthly basis.)