The preliminary reading of the Reuters / University of Michigan consumer confidence survey for November improved unexpectedly over the previous month's reading. However, should we take this to mean conditions are genuinely improving for Americans and that we should assume spending will recover in short-form? No. It's true that economists were expecting a drop in this sentiment gauge to 56.7, but actually marked a 0.3 point improvement to 57.9. Despite this modest uptick though, we have to remember that the indicator is hovering just above 28-year lows. Considering policy authorities have consistently downgraded their growth forecasts, employment and income is tumbling quickly and weatlh is virtually collapsing, the outlook looks much worse than what has already been seen so far.
Looking at the component breakdown of the indicator, the economic conditions indicator edged off its record (going back to 1978) low - perhaps a more realistic forecast for trends than through the volatile forecasts for expectations. The outlook dropped month over month, but was still above its own 28 year low. However, this comparatively reserved decline is likely due to the ongoing drop in energy costs and a brief stability in stock portfolios and retirement accounts. The most impressive shift in the breakdown was the drop in one-year inflation expectations. Gapping from 3.9 percent to 2.9 percent - owing largely to the drop in heating oil and gasoline prices - the Fed's monetary policy until now has been subsidized by the populace. More importantly, the expectation for prices to fall going forward may be an early sign that consumers will increase their spending habits (within their capacity given empoyment and income) going forward.
Source: Bloomberg Professional Services