Consumer Confidence
Consumer confidence is an important economic indicator that measures how consumers are feeling at the present moment. Consumer confidence is important because most industrialized economies are reliant on the consumer to drive the economy. If consumer confidence is rising, that means people feel the future is most likely prosperous; if consumer confidence is falling, that means people are worried abut the future. However, like many economic indicators, consumer confidence can be a contrarian tool. This means that when consumer confidence is at its weakest, the economy might be at a turning point.
Why Today’s Weak Durable Goods Numbers Foreshadow Low Confidence
By George Leong for Investment Contrarians | Apr 26, 2013
Consumers appear to be holding back on buying non-essential goods, and this could impact the economic recovery.
The durable goods orders contracted a dismal 5.7% in March, according to the United States Census Bureau, representing the largest decline in seven months—a far cry from the 4.3% rise in February and well below the Briefing.com estimate calling for a four percent decline.
Taking out the volatile transportation portion, durable goods fell 1.4%, versus the Briefing.com estimate of -0.1%, equaling the second straight month of declines.
The durable goods readings have largely been inconsistent, as reflected in the chart below, and suggest the economic recovery may be at risk.
Chart copyright © Lombardi Publishing Corporation, 2013;
Data source: United States Census Bureau, April 25, 2013
When consumers are more confident, they tend to spend more on major purchases in the retail sector, such as homes, vehicles, furniture, appliances, and travel. This will impact the economic recovery, gross domestic product (GDP) growth, and the ability of companies to expand their businesses.
But whether it’s the added taxes or the fragile confidence from the lack of strong jobs growth, the decline in the demand for goods that are deemed non-essential should be a red flag that not everything is proceeding along smoothly, which could affect the economic recovery.
The fact remains that jobs creation is fragile and not expected to ratchet higher until 2014 and 2015, due to the slow economic recovery.
The recent 88,000 jobs created in March was weak, so it will be interesting to see what happens with the April non-farm payrolls reading due next Friday.
Retail sales have also been … Read More
Market Decline Starts: The Stocks That Will Fall the Most
By Sasha Cekerevac for Investment Contrarians | Feb 26, 2013
One of the most important criteria for getting the economy back to optimal speed is for consumer confidence to begin accelerating. Much of a developed nation’s economy is based on consumer spending.
When making an economic forecast for a developed nation, taking into account shifts in consumer spending is extremely important. With new information raising doubts that consumer confidence will rise anytime soon, a more cautious economic forecast is necessary.
According to the Bloomberg Consumer Comfort Index, in February, the difference between positive expectations and negative expectations by consumers remained at –7 from the previous month. While current conditions by consumers in the Comfort Index rose during the week of February 17 to –33.4 from –35.9 the previous week, clearly, there is still a substantial amount of negativity when it comes to consumer confidence. (Source: Smialek, J., “Consumers in the US hold negative economic Outlook as fuel climbs,” Bloomberg, February 21, 2013.)
The composite reading in the Comfort Index shows a weak yet stable belief in the underlying economy. Interestingly, men have turned slightly more optimistic, with 34% reporting an improvement in the economy for February, versus only 24% in January. However, women turned more pessimistic in their opinion, with only 26% stating the economy is improving in February, versus 32% in January. Overall, the data points to continued weakness in consumer confidence.
I believe that several factors are causing this reduced level of consumer confidence. The obvious factor is the two percent increase in the payroll tax for Social Security. My economic forecast has to incorporate the lower level of take-home pay, especially for the middle- and lower-income earners…. Read More
How to Get Rich off the Eurozone Recession
By George Leong for Investment Contrarians | Feb 19, 2013
Traders appear to have forgotten the massive economic mess happening across the Atlantic in the eurozone. Remember Greece? The European debt crisis took Greece down with two separate bailouts. It has been so dire for this beautiful country on the Mediterranean Sea that Greece required a second bailout to make the payments on its first emergency loan.
The reality is that the eurozone financial crisis is still around; the eurozone problem is not going away.
Consumer confidence in the eurozone came in at -23.9 in January, which was an improvement over the -26.5 in December, but the region has a long road ahead. (Source: European Commission web site, last accessed February 15, 2013.) The problem with the eurozone is not only tied to the massive debt loans that have impacted Greece, Spain, Ireland, Portugal, and Italy; it’s also tied to the ongoing recession and high unemployment rate.
The eurozone has recorded three straight months of contraction in its economy, contracting 0.6%, or about 2.5% on an annualized basis, in fourth quarter 2012, according to data from Eurostat. What was also a red flag were the economies of the eurozone’s two largest members: Germany, which shrunk by a worse-than-expected 0.6% in the fourth quarter, and France, whose economy contracted by 0.3% in the fourth quarter. My major concern is that the mess in the weak countries is driving down growth and pushing up the unemployment rate in France and Germany, the two pillars holding up the eurozone. Capital Economics suggested France and Germany will face another recession in 2013.
At the same time, a major issue is the region’s super-high unemployment … Read More
Potential Economic Threat: American Pessimism Grows as Politicians Bicker
By Sasha Cekerevac for Investment Contrarians | Feb 1, 2013
One of the most difficult concepts for both retail and professional investors and analysts is the incorporation of transitory or one-time events into information regarding economic growth and job creation.
What do I mean? There are many moving parts in the economy. Not all data can be compared on an equivalent basis. Even year-over-year data comparisons should incorporate far more variables.
As an example, recent data on both economic growth and job creation over the past six months have confused many professionals due to the many uncertainties affecting consumers and businesses.
We had the election, the fiscal cliff debate, and heated arguments by politicians on major structural issues, all of which created confusion with the data.
For the last six months, we have constantly heard from businesses that they were worried about the impact of the fiscal cliff. Many stated they were reluctant to expand their business; this sentiment can lead to a lower level of job creation, which would affect economic growth.
Is it reasonable to compare this latest set of data to the previous year’s data? What about the year before that? Clearly, the last six months were far different than the same time period last year. And since we can’t reasonably calculate how an individual or business would have acted without these uncertainties being present, data must be interpreted much more cautiously.
An example of interpreting behind the data is the recent release by The Conference Board of its Consumer Confidence Index for January, which declined to 58.6 from 66.7 in December. This was far lower than the median forecast in a Bloomberg survey of 64.0. January’s … Read More
Why the Fiscal Cliff Deal Is Pathetic
By Sasha Cekerevac for Investment Contrarians | Jan 3, 2013
When it comes to making an economic forecast for the U.S. economy in 2013, a huge stumbling block was the uncertainty prior to the deal to avert the fiscal cliff. The just-announced new deal to avert the fiscal cliff is absolutely pathetic and will not accomplish what many were hoping for; a comprehensive long-term deal to lower the U.S. budget deficit and create an environment that will foster long-term gross domestic product (GDP) growth.
The level of uncertainty has recently started to impact consumers. The impact on consumer confidence was noted during the latest Conference Board Index in which consumer confidence fell six percent to 65.1 in December from November, the lowest since August 2012. (Source: “The Conference Board Consumer Confidence Index® Declines,” The Conference Board, December 27, 2012.)
GDP growth is heavily dependent on consumer confidence. Since the majority of the U.S. GDP growth is based on consumer spending, any pullback in consumer confidence is a worrying sign, with its potential for lowering an economic forecast for 2013.
An interesting dynamic was that consumers assessed that current conditions improved in December from the previous month. Business conditions rose to 17.1% from 14.6% the previous month; however, expectations for business conditions over the next six months declined to 17.6% from 21.3%.
This might seem contradictory, but it really shows that while the current economy is somewhat improving, the political grandstanding and ineptitude to avert the fiscal cliff have been increasing concerns for the future GDP growth of the American economy. This type of uncertainty will certainly put a damper on any economic forecast.
This new compromised deal has plenty of … Read More
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