Consumer confidence drops in September; emblematic of a jobless recovery

The University of Michigan’s consumer sentiment index was weaker than expected in early September, falling to 66.6 from 68.9 in August. The decline was entirely due to weaker expectations. Five-year inflation expectations were unchanged at 2.8%.

BOTTOM LINE

Consumers’ view of the outlook took a bit of a dive in early September even as their assessment of current conditions held steady. Since June, consumer sentiment has fallen 9.4 points and this decline mirrors the post-recession drops in confidence from May 2002 to October 2002, when sentiment dropped 16.3 points, and September 1991 to February 1992, when sentiment fell by 14.2 points. In neither of these earlier episodes did the economy double dip and in the 12 months following October 2002 real PCE grew by 3.4%, while it advanced 3.5% in the 12-month period ended February 1993. We think that these declines in confidence are typical of jobless recoveries and have no implications for the outlook for consumer spending. Medium-term inflation expectations remained contained in early September at the lower end of the range that has prevailed for several years. Five-year inflation expectations at 2.8% provide no evidence of deflation risk.

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