Rebel Traders – Analysis Without The Hype

Consumer confidence plunges in February

In January the confidence index, collected by the ‘The Conference Board’, stood at 56.5. In today’s latest data release that figure dropped to 46.0. Additionally, the ‘present situation’ index dropped to a 27 year low.

The Conference Board Consumer Confidence Index®, which had increased in January, declined sharply in February. The Index now stands at 46.0 (1985=100), down from 56.5 in January. The Present Situation Index decreased to 19.4 from 25.2. The Expectations Index declined to 63.8 from 77.3 last month.[…]

[…] Consumer Confidence, which had been improving over the past few months, declined sharply in February. Concerns about current business conditions and the job market pushed the Present Situation Index down to its lowest level in 27 years (Feb. 1983, 17.5). Consumers’ short-term outlook also took a turn for the worse, with fewer consumers anticipating an improvement in business conditions and the job market over the next six months. Consumers also remain extremely pessimistic about their income prospects. This combination of earnings and job anxieties is likely to continue to curb spending." […]

Warning – The following economic information may be hazardous to ‘green shoots’.

JUNE CONSUMER CONFIDENCE: 49.3 V 55.3E

Conference Board: Decline in present situation index due to less favorable assessment of business conditions and employment. Expectations show less negative conditions in the months ahead instead of strong growth.

June consumer confidence data showed people more downbeat about current employment situation, fewer people felt jobs were plentiful than in May, more people felt jobs were hard to get vs month ago.

The National Association of Purchasing Management-New York’s monthly measure of business activity showed conditions worsened in June, although the purchasing and supply managers surveyed felt a bit better about the six-month outlook.

The index of current business conditions tumbled to 44.8 in June from 61.3 in May

FEBRUARY CONSUMER CONFIDENCE: 25 V 35.0 Expected

LOWEST READING ON RECORD

January consumer confidence data released by the ‘Conference Board’ sets a new all time low going all the way back to 1967. Consumer confidence is forward looking data as it reflects the sentiment of consumers about their own personal income and employment situation, and this reflects directly on consumer spending.

JANUARY CONSUMER CONFIDENCE: 37.7 (another record low)

Consumers’ short-term outlook remains quite pessimistic. Those expecting business conditions to worsen over the next six months decreased slightly to 31.1 percent from 32.9 percent, while those anticipating conditions to improve remained relatively unchanged at 13.3 percent in January, compared to 13.4 percent in December.[...]

The Consumer Confidence Surveyâ„¢ is based on a representative sample of 5,000 U.S. households. The monthly survey is conducted for The Conference Board by TNS. TNS is the world’s largest custom research company. The cutoff date for January’s preliminary results was January 21st.

Consumer confidence data for December came in at 38 and this is another record low. Much lower than Wall Street analysts were looking for. But this sharp decline is no surprise to RebelTraders. Rising unemployment is the key factor in the declining confidence of the consumers. The employment outlook for the U.S. is not good and is still deteriorating. Expectations of a 10% unemployment rate heading into 2010 is a very real possibility, maybe even higher than that.

I’ll post a chart of the consumer confidence trends this evening.

Today was an "Oh Shit" day. The non-manufacturing ISM data released this morning was a blow to even the diehard bulls. Just as in the manufacturing ISM data, any top line number that drops below 50 represents contraction, over 50 is expansion. This index is relatively new to the scene having started in 2003. Before 2003 the standard ISM data was sufficient to gauge the economy as manufacturing was a large part of the United States employment structure. Not any more, with so much of this country’s manufacturing having gone to other countries the manufacturing of goods in this country has dwindled substantially in recent years. So the ISM had to split apart the data to now show manufacturing in one index, and the non manufacturing business in another. And the non manufacturing ISM data is actually the greater percentage of business in the United States now. The non-manufacturing ISM index is comprised of the following industries:

Agriculture, Forestry, Fishing & Hunting; Mining; Utilities; Construction; Wholesale Trade; Retail Trade; Transportation & Warehousing; Information; Finance & Insurance; Real Estate, Rental & Leasing; Professional, Scientific & Technical Services; Management of Companies & Support Services; Educational Services; Health Care & Social Assistance; Arts, Entertainment & Recreation; Accommodation & Food Services; Other Services*; and Public Administration

Today’s data was the first time this group as a whole has breached the into the negative side. But as you all know we follow trends and the trend for the life of this index has been declining, but now has crossed the line and gone negative. The impact of the credit crisis, housing crisis, inflation, and the many other forces plaguing our economy are accelerating rapidly. The economic health of the United States is deteriorating at a rapid pace.

The chart below is the latest Non-manufacturing ISM data:

(data source: Moody’s Economy.com)

Contained within the raw data for the data we find that employment has decreased 7.9% from just the past month, prices paid for materials and services (inflation) has continued to increase for 56 consecutive months. As the prices for goods continues to increase it makes the job of the FOMC even more difficult. As so many talking heads continue to say on TV all they have to do it cut interest rates. But cutting the rates fuels the inflation further. So the next time a talking head says the cure to everything is to just keep cutting interest rates remember that inflation is a REAL problem and will get worse if they keep cutting. Inflation makes it harder for companies to operate profitability. If they forward the price increases on to the consumers then consumer spending pulls back as the cost of living gets higher. See how it works.. a vicious cycle.

The employment figures are also bad news as it shows a substantial drop in employment levels due to cutbacks. This data gives us a clue into the next Government unemployment report at the end of the month.

Consumer confidence also continues to deteriorate. Confidence has now broken below the lowest point of the last recession. Also note how the consumer confidence never reached the levels from the late 90’s. The recession of 2000 / 2001 pushed consumer confidence down and since that time the American people have never regained their original confidence in the economy. Seems it is all coming home to roost now.

(data source: Moody’s Economy.com)