Consumer Sentiment Heading The Wrong Way

The University of Michigan has reported its preliminary consumer sentiment report for July.  It seems that the “confidence” portion may be limping back towards impotence.  The mid-July report showed a reading of 64.6, down from a consensus estimate of 70 from Bloomberg and from 70.8 in June.

The current index was at 70.4, down from 73.2 in June.  The expectations for mid-July is where the real departure came to pass.  Those expectations went down sharply to 60.9, from 69.2 in June.

The good news comes on the inflation front where the expectations are now for 3% for the next year rather than 3.1% in June.  For 5-year forecasts, this went up 0.1% from June to 3.1% for July.

The total index had jumped over 11 points if you add up the May and April figures before last month.  Those gains are now being taken back.

I have personally argued for years that this reading is a flawed barometer and not inclusive enough to be a very valuable number.  My argument isn’t even based on the notion that the study is conducted out of a state that never seems to be anything other than a recession.  The University of Michigan’s Consumer Survey Center questions 500 households for the preliminary report each month.  Either way, this is heading back the wrong direction for anyone looking for a V-recovery or even a U-recovery.  This is more like a small ‘W’ or just a very long “L” pattern.

Green shoots are disappearing.  That is a lame term anyway.  The green shoots are starting to look like green sharts.

Jon C. Ogg
July 10, 2009