Consumer confidence is the third miss by economists in a single day. Please consider the Bloomberg Consensus Estimate for Consumer Confidence.
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.
Missing the Boat
Not only was the consensus outside the range of reading predictions, economists did not even get the leading sign correct. Economists expected 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
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
click on chart for sharper image
I created the above chart with data from Fed does a Survey of Consumer Expectations
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
I commented on sales in Dismal Retail Sales Numbers Suggest 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.
click on chart for sharper image
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 YoY Sales Are Positive
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
- January 14 – Economists Still Upbeat: Retail Sales Drop Seen as “Blip”
- February 13 – Economists Blame Weather: Retail Sales “Unexpectedly” Decline; December Revised Lower, GDP Estimates Follow.
- April 14 – Experts Confounded: Retail Sales Rise First Time in Four Months, But Weaker Than Expected.
Consumers Did What They Said
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 3% growth this year, whereas I think the US is in recession.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
