July 30, 2003

Divergent Expectations

MSN's Jim Jubak worries about the striking divergence between the (relatively pessimistic) expectations of consumers and the (relatively optimistic) expectations of Wall Street analysts. He seems to come down on the side of consumers: he thinks that the confirming numbers one would expect to see if analysts' forecasts of a strong second-half recovery were coming true are hard to find:

MSN Money - Jubak's Journal: ...So why such different reads on the future from consumers on Main Street and analysts on Wall Street? The conventional explanation is that consumers are pessimistic because their emotions are so heavily influenced by the continued high level of unemployment.... Wall Street tends to dismiss the jobs worry. Unemployment is a lagging indicator.... But that explanation sells consumers short. Looking around, consumers can see that companies are still in the last stages of announced cost-cutting and the next six months will bring additional layoffs.

Wall Street analysts have their own data problem. There's nothing in second-quarter results or company guidance for the third quarter that shows the long-anticipated second-half recovery will arrive on schedule.... Look at the technology sector. Earnings per share gains of 21% in the second quarter have come on revenue gains of just 4%. Take out the inflation of revenue thanks to a weaker dollar and revenue gains in the quarter are in the neighborhood of 2%. In their second-quarter guidance, companies haven't said anything that adds up to the kind of top-line growth you'd expect from a second-half recovery. Comments have ranged from "there's no sign of improvement" to "just seasonal gains" to "gaining market share but no industry pickup". A third of the way through the third quarter, the recovery remains hard to identify. So investors looking for guidance on the market have their choice of consumers, who may be too backward-looking, and analysts, who may be too forward-looking. One side or the other will be wrong. Investors just don't know which yet...

Posted by DeLong at July 30, 2003 10:03 PM | TrackBack

Comments

Just for some background, I have a graph of the consumer confidence numbers since November 1999 on my website. It was posted on 7/29, so just scroll down. My current graph is unemployment since 1992.

Posted by: Unrelated Disney on July 31, 2003 04:29 AM

I want to add a description of the graph. Consumer confidence fluctuates around 140 will Clinton is president, then drops to around 115 once Bush takes over. After 9/11, it drops to around 85, then rebounds to 110. Then, starting in May, confidence starts plunging downward to lower than what it was after 9/11. There is bump up in April, May and June for the war, and now it has started down again.

Posted by: Unrelated Disney on July 31, 2003 04:41 AM

Unrelated D -

How tight is the several year relation between consumer confidence and spending?

Posted by: bill on July 31, 2003 10:12 AM
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