December 12, 2003

Disappointing Consumer Confidence Number


CBS News | Consumer Confidence Slips | December 12, 2003 12:15:47: Consumers have turned more cautious after deciding that all the talk of an improving U.S. economy may still be just so much hot air, according to researchers at the University of Michigan. The consumer sentiment index fell Friday to a reading of 89.6 in early December from 93.7 in November. The decline was unexpected. The consensus forecast of Wall Street economists was for sentiment to improve to 95.6. Consumer sentiment has risen sharply since hitting a 10-year low of 77.6 in March.

However, consumers cited fewer gains in wages as the primary reason for concern about their personal financial situation in early December. Growing impatience by consumers for their personal financial situation is typical after an initial surge in confidence tied to a recovering economy, researchers said. Consumers soon begin to wonder when the improving economy will translate into higher wages or a better job. "The data make it clear that consumers are counting on more rapid job growth in the months ahead, and without that growth in employment, confidence will quickly wane," the University of Michigan research team said.

Let's hope this doesn't have much depressing effect on consumption spending this month...

Posted by DeLong at December 12, 2003 01:14 PM | TrackBack


The loss of quality jobs, such as those in manufacturing, has led to lower average wages among industries gaining jobs relative to those industries that are losing jobs.

EPI analysis of private-sector employment over the recovery reveals that since the recovery began, the sectors that have added jobs pay lower wages than those industries that have shed jobs. Sectors gaining employment pay an average of $14.65 per hour, while sectors losing jobs pay $16.92.

Posted by: anne on December 12, 2003 01:33 PM


Given the poor job creation since the recovery began in November 2001, the low level of wage increases, the use of debt to maintain consumption, and the low level of household saving, we should be worried about consumer demand. There are times when it seems that consumer demand has no limit, but there really must be a limit. The recent gains in expensive consumer durables may be borrowing from coming months.

Posted by: anne on December 12, 2003 01:43 PM


I am looking to buy my first house. I keep looking at these numbers and I am thoroughly baffled. I feel as if housing prices must come down at some point, but they keep going up. I think it was dsquared who added the corallary that something that cannot continue will go on longer than you thnk it possibly can. I have been waiting for housing prices to come down to a level consistent with traditional income/housing cost ratios, but they seem to rising forever. Any advice on what to do? Thanks.

Posted by: theCoach on December 12, 2003 01:51 PM



Posted by: lise on December 12, 2003 01:52 PM


Ruse in Toyland: Chinese Workers' Hidden Woe

SHENZHEN, China Workers at Kin Ki Industrial, a leading Chinese toy maker, make a decent salary, rarely work nights or weekends and often "hang out along the street, play Ping-Pong and watch TV."

They all have work contracts, pensions and medical benefits. The factory canteen offers tasty food. The dormitories are comfortable.

These are the official working conditions at Kin Ki as they are described on paper crib sheets handed to workers just before inspections.

Those occur when big American clients, like the Ohio company that uses Kin Ki to produce the iconic toy Etch A Sketch, visit to make sure that the factory has good labor standards.

Real-world Kin Ki employees, mostly teenage migrants from internal provinces, say they work many more hours and earn about 40 percent less than the company claims. They sleep head-to-toe in tiny rooms. They staged two strikes recently demanding they get paid closer to the legal minimum wage....

Posted by: lise on December 12, 2003 01:58 PM


There are times, when home prices have risen for so long and rents have often lagged behind, when renting and investing in financial assets make sense. [For a while.]

Posted by: anne on December 12, 2003 02:09 PM



The ratio of home prices to household income may be badly out of whack in one direction, but the ratio of median mortgage payments to median income is out of whack the other direction. The National Association of Realtors calculates a housing affordability index, which compares the median family income to the monthly cost of mortgage payments for the median priced home. A reading of 100 means that the median income family can just qualify for a mortgage to buy a median priced home, under a set of unchanging conditions (size of down payment and the like). The index has averaged 141.5 so far this year - the median family can just affort the mortgage on a home priced at 141.5% of the median home price. You can see the problem with waiting for affordability to drive home prices down. The only time since 1988 (when the index began) that homes have been this affordable was the 12 months to June 1999.

Note it is also very uncommon for housing prices to fall overall in the US. Regional declines, due to local economic difficulties or demographic factors, are pretty frequent, but that leaves you betting on something bad happening in your neighborhood to drive home prices down. A 5% drop in the median home price would be an eye-popper, especially given that price declines would be geographically uneven - some places would likely see 30% declines or more to drive a 5% drop nationwide.

Posted by: K Harris on December 12, 2003 02:46 PM


There is a tendency for economic data to be seen as running in better-than-expected/worse-than-expected cycles. Whether that perception reflects actual coordinated wiggles in data vs expectations or just plain old confirmation bias, I cannot tell. I do know, however, that we have been through a lengthy period of better than expected data. Jobs data through October were happy, ISM data were happy, claims were happy, factory orders, having fallen forever, now seem only to go up.

Then, something happened. The November non-factory ISM reading, though just dandy at 60, missed expectations my nearly 5 points. Then November jobs data werent all they were cracked up to be. Retail sales were a happy surprise, relative to expectations, but werent enough to argue for a big contribution to Q4 GDP. Jobless claims have been above expectations the past couple of weeks.

Consumer confidence never tells you much that you didnt already know, but it is pretty good at confirming things you saw for yourself during the survey period. Michigan data seem to have been the last thing needed to get the whisper going December will be disappointing. Cant know whether that will be true, but some Street economists are starting to give the notion just a little bit of play. There is, of course, only one number that matters in December. That's retail sales, which isn't due for a while.

I will admit to a dour 3.5% GDP expectation for Q4. HSBCs smarter-than-me Ian Morris is apparently looking for 3.2%, though that is up from his prior estimate.

Posted by: K Harris on December 12, 2003 03:02 PM


In their policy paper on Social Security reform, Dr. Diamond & Orszbag noted an increase in income inequality as one of the factors that is suggesting the system is becoming less solvent. And now slow wage growth may be the Grinch that steals Christmas. Alas.

Posted by: Harold McClure on December 12, 2003 04:37 PM


In their policy paper on Social Security reform, Dr. Diamond & Orszbag noted an increase in income inequality as one of the factors that is suggesting the system is becoming less solvent. And now slow wage growth may be the Grinch that steals Christmas. Alas.

Posted by: Harold McClure on December 12, 2003 04:40 PM


Holiday sales will be *much* worse than expected. Mark my words. The financial markets will turn bearish in late January.

K Harris's information on housing is very interesting, but I can't help but think we're going to see a housing collapse. This is a bubble. People don't want to think so, just like they didn't want to think it was a bubble in the financial markets a few years ago.

But Daniel's corrolary is probably correct. It will go on longer than we think it can. Just like the stock market bubble did.

Posted by: Keith M Ellis on December 13, 2003 03:55 AM


Let's see, the busiest weekend of the Christmas season is the weekend before, provided Christmas is late enough in the following week, which it is this year, so that's the weekend of December 20-21. 90 days from that is, ummm, March 20-21. Look for a bankruptcy spike as Spring begins. Could afect the primaries, and psephologists say the circumstances in the Spring of an election year are good predictors of the results in November.

Posted by: Dick Thompson on December 13, 2003 08:15 AM


"In their policy paper on Social Security reform, Dr. Diamond & Orszbag noted an increase in income inequality as one of the factors that is suggesting the system is becoming less solvent. And now slow wage growth may be the Grinch that steals Christmas. Alas."

Most important! Remember, remember remember, that Social Security was fine till 2040, in 2000. Then, George Bush and Alan Greenspan began to fret about an awful budget surplus that was to bring down capitalism.

Posted by: anne on December 13, 2003 09:41 AM


Coach -

K Harris -

as always makes fine points about buying a home. I have no expectation that home prices in general will decline, however I find no reason not to build liquid assets till homes become quite affordable for "you." There will be times when homes will seem better investments, though not cheaper. Those times may well be when interest rates are higher. Perhaps, though, I am arguing poorly. I always try to think of investment potention of assets, but homes have other qualities.

Please comment further....

Posted by: anne on December 13, 2003 10:23 AM


The recent demand for expensive consumer durables has been terrific and Americans shop shop shop, but I would not be surprised to find quite a slowing in a coming quarter. Still, I learned never bet against shoppers shopping.

Posted by: anne on December 13, 2003 10:30 AM


At bottoms consumer confidence has a very strong correlation with the stock market PE. But at peaks for the market PE the relationship is extremely inconsistent.

From 1960 to 1990 the stock market PE had a
correlation of 0.8 with the U. of M index of consumer expectations.
But,along with many other PE indicators it broke down in the early to mid 1990s. But it is starting to look like the tight fit between the stock mkt PE and the U. of M. consumer expectations index may be reemerging.

Posted by: spencer on December 14, 2003 06:01 AM


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