Friday, August 17, 2007

Consumer Confidence Index--August Mid-month Figure

It's official, the preliminary August figure from the Reuters/University of Michigan Surveys of Consumer Sentiment is significantly lower than July's final number of 90.4. August's mid-month assessment came in at 83.3. (source)

The sharp drop comes as no surprise after weeks of turbulence in financial markets around the world. Yesterday brought difficult news about the housing sector.

From BusinessWeek, (Housing Starts: It's Going to Get Worse--Starts on new homes plummeted to a 10-year low in July, exceeding Wall Street's prediction by 25%), August 16:

"On Aug. 15, the National Association of Home Builders (NAHB) reported that the NAHB/Wells Fargo Housing Market Index had declined two points in August to 22, its lowest level since January, 1991—which also happens to be the worst month for housing starts in history. Derived from a monthly survey, the index gauges builder perceptions of current single-family home sales and sales expectations for the next six months."

In a consumer driven and consumer spending centered economy, this is bad news. The conventional wisdom holds that new housing stimulates retail spending by consumers who need stuff to put in their houses. And bigger houses mean even more stuff.
But when is enough, enough?

Consumer spending has accounted for more than two thirds of economic activity. A significant portion of this has been debt driven. How ironic that prudent financial behavior on the part of consumers (spending within their means) is seen as harmful to our economy.

"We have nothing to fear but fear itself." Who said that? A neighbor to the north! In an article today at Canada.com, Avery Shenfeld, senior economist at CIBC World Markets (although he didn't attribute the quote to a person or context). His point was to reassure Canadians that they were relatively sheltered from economic turmoil south of the border. He was quoting F.D.R.

What F.D.R. did say in his first inaugural address March 4, 1933 was:

"So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance."

That was then; this is now.