Consumer Attitudes: How Low Can They Go?

Consumer confidence (the term used by the Conference Board) and consumer sentiment (the label used by the University of Michigan) are not quite at their all-time lows, but they are very close to them.

This seems a little odd because two of the biggest elements of consumer attitudes, unemployment and inflation, are quite benign.
Unemployment, at 5.5 percent, is a hair below its long-run average (5.6 percent).  Inflation (all items) is 4.1 percent, only a little above its long-run average of 3.7 percent.

Why the doom and gloom?

Maybe home prices (see the previous post).

Maybe gasoline, but that's not as obvious as it sounds.  The gas price hikes are incorporated (except for the very last month) in the inflation rate.  But perhaps consumers are giving gas a higher weight than the folks who compile the Consumer Price Index.  Do consumers realize that apparel prices are down from a year ago?  I just bought a new suit, but its hard for me to know if the price was lower because prices of comparable suits are lower, or perhaps I picked a suit that's not quite as nice as the last one I bought.  I know what I pay for gas, but I'm not sure what I pay for underwear.  So I think that maybe consumers are giving a disproportionate weight to gasoline prices.

Maybe its election year rhetoric making people gloomy, or lousy weather, or the President's low approval rating.  All things considered, though, attitudes are worse than the fundamentals dictate.  Look for consumers to decide sometime soon that the sky is not falling after all.

Comments

[Laurence Hunt]

Bill,

I think the answer is easy.

The inflation and unemployment numbers are increasingly inaccurate and distorted. The distortion itself is a trend, and I'm thinking it may be going parabolic at this point.

Look to John Williams for an honest effort to set the record straight.

http://www.shadowstats.com/

The talk of shocking levels of inflation in many sectors is now out on the street, giving the lie to the massaged numbers emanating from official sources.

At some point, the official agencies will start telling the truth again - but not yet....

[Mark Chambers]

I wish I had data on which to rely, but methinks gas prices are "overweighted" because every trip to the gas station reminds people of their views of the current president, and Iraq. Folks from every political stripe buy gas, whether supporters want more done, or detractors want withdrawal. They feel helpless, and know that they now have to change their habits, which people prefer when they make the choice. It is no longer a choice over which they have any control.