This post appeared earlier today on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.
Apparently, consumers are smarter than Wall Street. While the stock cheerleaders of lower Manhattan continue to look for signs of a market bottom, consumer confidence fell to a 16-year low according to the Conference Board report released on Tuesday. Going beyond the headline, the actual report shows that consumers think things are bad and don't expect a change anytime soon.
The Consumer Confidence index fell to a reading of 50.4 from May's level of 58.1. That ever-upbeat group of folks known as economists and analysts expected a more subdued decline to the 56 level. It was the fifth-lowest level ever recorded in the index. The index of expectations was even worse. The measurement of consumers' expectations for the next six months reached an all-time low -- 41.32% of consumers think conditions are bad, and only 8% think conditions will improve this year. Almost a third of those surveyed are finding it hard to get suitable employment.
The reasons for the negativity are very simple to deduce. It is amazing to me that those living between the rivers and inside the Beltway are having such a hard time realizing that a rebound
is not imminent. Food and energy prices have gone through the roof. You can seasonally adjust costs as much as you like in your report, but the price at the checkout and fuel pump are paid in real dollars. The median household income in the U.S. is about $50,000 a year. When gas doubles and many food items triple, there's just not a lot of money left at the end of the month.
For most Americans, their single largest asset is their house; they have been taught and encouraged to think of it as an investment and refinancing as a cash-flow tool. Those days are gone, as house prices are falling. The price of an average home has fallen about 15% so far this year. All 20 major metropolitan areas covered by the S&P/Case-Shiller report dropped in April. If you live in Vegas or Miami, your house value has fallen more than 25% in the last year. The reason for the pessimism is not hard to figure out -- the consumer is scared to death. The family budget is stretched to the breaking point. Their home is worth far less than it was just last year. A lot of them have adjustable-rate and interest-only mortgages that are resetting to payment levels they can't afford.
Tim Melvin
RSS
