Consumer sentiment -- how low will it go?

Falling farther than expected, the Reuters/University of Michigan preliminary December number came in at 74.5 from 76.1 in November.

Here's the familiar list of causes :
subprime mess
credit crunch
fuel prices
gloom and doom
volatile markets
foreclosure crisis

Illinois beats number 1 Ohio State -- 28, 21

Wow! As an Illini, I absolutely must take a moment to acknowledge this. Illinois beat Ohio State at Ohio. A historic upset.

Fans of Michigan should be grateful, as this gives Michigan a shot at the Rose Bowl.
I L L I N I

October Consumer Confidence -- lower than expected

The Reuters/University of Michigan Index of Consumer Sentiment fell further than expected in October, as the persistent housing decline slammed expectations for the economy.

The index fell to 80.9 in October from a reading of 83.4 in September.

Trouble in the housing market is seeping into other sectors as consumers become more guarded with their resources.

Consumer sentiment holds steady in September, UM reports

The final September University of Michigan consumer sentiment index has held steady at 83.4.

Preparing for September Consumer Confidence Number

It's been a heck of a month. Let's review:

1. August orders for durable goods take their biggest decline in seven months. (source) 9/26/7

2. Existing home sales drop for the sixth straight month in August reaching the lowest rate of sales in five years. (source) 9/25/7

3. The Conference Board consumer confidence index dips to a 2-year low. (source) 9/25/7

4. Crude oil tops $84 per barrel. (source) 9/20/7

5. U.S. dollar and Canadian dollar hit parity for first time in 30 years. (source) 9/20/7

6. Fed cuts interest rates for the first time in four years. (source) 9/18/7

7. RealtyTrac reports foreclosures jumped 36% in August. (source) 9/18/7

8. Crude oil hits record $80 per barrel. (source) 9/13/7

9. U.S. payrolls decrease by 4000 instead of increasing by the expected 110,000. (source) 9/7/7

10. GM announces fourth quarter production will be cut by 10% in response to weak August sales in a tightening credit market. (source) 9/4/7

Ann Arbor Pioneer High School Football on a Friday Night

Ann Arbor 58, Lincoln 13

Ann Arbor Pioneer High School's Hollway Field looks down on University of Michigan's Big House from the south. Claiming some of Ann Arbor's highest ground, several stadium light poles double as cell phone towers.

Tonight the brisk northwest wind evoked October in the UP or perhaps a summer dip in Lake Superior. It was cold, really cold. The band was great and the home team won.

An entire parking lot at the high school was cordoned off for tailgaters spending the night before tomorrow's University of Michigan--Notre Dame match. Large, fully appointed RVs filled the lot looking like a beached fatty seal herd.

Tomorrow will bring barbeques heaped with meat products, drink cozies snuggling beer, street vendors with knock-off block M merchandise, and ticket scalpers.

Pioneer High School profits from its proximity to the Big House. The school provides parking for hundreds of cars and safe space for revelers every Michigan home game. We take it for granted, but shouldn't.

Our students' graduation rate is among the highest in the state, as is their rate of college admission. These are hard working kids with a lot of advantages, all things considered; but they are not unscathed by the economic realities of today's Michigan.

Their parents work hard and stress over paying for college while saving for retirement. A number of them were employed at Pfizer, a larger number, in the auto industry. Many are successful professionals striving to provide every advantage for their children. And some live in subsidized housing.

Tonight, all was well at Hollway Field. Kids cheered on their classmates. Parents cheered their kids. And the band rocked the house, punctuating touch downs with funk. They'll be playing Carnegie Hall in the spring.

Consumer Confidence--Preliminary September Number

Despite a softening housing market, increases in foreclosures, the first decline in U.S. payrolls in four years, job slashing in the mortgage industry, and the dollar hitting a record low against the euro--consumer sentiment seems to be holding steady at 83.8 mid-month, compared to 83.4 in August, according to the University of Michigan/Reuters survey of consumer sentiment.

Truth is Stranger than Fiction--Economic News this Week

Looks like maybe we're not in a one-state recession anymore.
U.S. payrolls decreased by 4000 instead of increasing by the expected 110,000. It's the first drop in four years.(source)

More job cuts in the knowledge-based financial sector.
Countrywide Financial, the biggest U.S. home lender will downsize 12,000 jobs (1/5 of its workforce) over the next three months. (source)

Denial runs as deep as your credit limit.
August back to school spending was brisk. (source)

Your credit limit may be increasing if you are a particularly bad risk, through the generosity of credit card companies.
Direct mail credit card offers to subprime customers were up 41 percent in the first half of this year, compared with the first half of 2006, according to Mintel International Group.(source)

Do these things taken together make any sense?

Next Friday will bring the University of Michigan Consumer Sentiment Preliminary Number for September. It's anybody's guess.

Consumer Confidence Index--August

The Reuters/University of Michigan August Consumer Sentiment Index came in at 83.4, markedly lower than July's unexpected high of 90.4.

Good economic news this summer has been eclipsed by the worldwide impacts of subprime mortgage defaults in the U.S. Central banks from here to Britain are still busily loaning money to institutions that uniformly claim sufficient liquidity. Barclay's has claimed that a "'technical breakdown' in the UK's clearing system forced it to borrow £1.6bn from the Bank of England."(source)

This morning the New York Times reports that "Freddie Mac, the nation’s No. 2 buyer and backer of home mortgages, set aside more than $300 million in the second quarter to account for bad loans, contributing to a 45 percent drop in profit."

Consumers have enthusiastically used home equity to continue spending. Consumer spending accounts for two thirds of economic activity. Numerous "homeowners" are now flipped, owing more than their homes' current market values.

The big question: what will happen when consumers decide or are forced to spend within the limits of their actual incomes?

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.

August Consumer Confidence Index--Preparing for the Preliminary Number Friday

In just two days, the mid-month preliminary Reuters/University of Michigan Consumer Sentiment Index will be released for August. July saw an unexpected rise in consumer confidence, but August will surely be lower. In the last few weeks, financial markets have grown highly volatile due to the subprime mortgage lending crisis in the United States.

Why does this matter to consumer confidence? Because consumers have been tapping their inflated home equity as though it is a personal ATM. Trouble is, it isn't real equity until you have paid off your mortgage. Some in the financial world might disagree with that statement. In truth, consumers were lulled into thinking residential real estate values would continue to rise with no end in sight.

And so tapping that "purchasing power" seemed to make sense. Some people did it to pay for luxuries, others for necessities. Indeed, after 9-11 consumers were urged to shop as a patriotic act. Imagine that, reckless spending as patriotic duty. Kind of resembles the attitude toward the actual cost of the war in Iraq.

Now, many "homeowners" are actually in negative territory--owing more than their properties are worth and locked into loan agreements with interest rates that will reset higher than they can afford. And this in a historically low interest rate environment.

But these really bad loans were made because the mortgage industry has shifted from the bailiwick of depository institutions (banks, credit unions and savings and loans) to the mercurial world of non-depository lenders. Since the 1980s most regulation of mortgages has been gutted. In plain speak, mortgages became securitized--fodder for big deals on Wall Street. Local non-depository lenders and brokers had no incentive to make prudent loans; bigger was better. More was better. In this go-go environment local accountability took a back seat to closing the deal at any cost.

As the subprime mortgage debacle continues rattling global markets, credit will tighten, property values will continue to decline, foreclosures will increase and the impact will reach the sectors that sell to home owners--places like La-Z-Boy and Home Depot.

Consumer confidence? If it remains high, the folks surveyed are either in excellent financial shape or deep denial.

Consumer Confidence in the Global Village

The University of Michigan Institute for Social Research has been conducting consumer surveys since 1946. Earlier this year, UM entered a partnership with Reuters to disseminate the results of their consumer surveys. The gold standard of such surveys, the Index of Consumer Expectations portion is an official component of the U.S. Index of Leading Economic Indicators.

The final numbers for July are due out tomorrow morning. Drum roll please. The preliminary numbers for July were unexpectedly high--92.4 up from 85.3 in June. But domestic economic news has been mixed in the meantime.

On Tuesday Countrywide Financial Corp., the nation's largest mortgage lender, reported a 33% drop in second quarter net income. It also reported that prime borrowers are showing payment difficulties on home equity credit lines.

At 3:30 today, the Dow was down by 350 points, with analysts citing concerns about credit as catalyst for the meltdown. And this had a global impact, as the SanDiego Tribune online site reports:"The declines triggered a global sell-off in stocks, causing minor losses in Europe to accelerate rapidly along with the Dow's drop. In Europe, Britain's FTSE 100 closed down 3.15 percent, Germany's DAX index dropped 2.39 percent, and France's CAC-40 fell 2.78 percent."

To prepare for Friday's release, have a look consumer and business confidence assessments from the global village:

South Africa--Consumer Confidence Still Positive-MasterIndex survey commissioned by Mastercard.
India--India Tops Consumer Confidence Index--AC Nielsen survey for the first half of 2007.
Turkey--Consumer Confidence Drops by .82%--survey by Turkstat and the Central Bank of Turkey.
China--Consumer Confidence Rebounds in July--survey by Xinhua Finance and eziData.
Germany--Business Confidence Falls Slightly in July--survey by Ifo, Munich.
France--Business Confidence Near Six Year High--from Insee, Paris-based national statistics office.

The official release of the Reuters/UM Consumer Confidence Index is around 10a.m. Brace yourself.

Ann Arbor Art Fair

If you live in Ann Arbor you either love or hate the annual Art Fair. There is no middle ground on this issue. It brings commerce, but it jams up the city. Thousands of people from around the country converge on downtown and the University of Michigan for four days in July. They shop, amble, eat, listen to music and soak in Ann Arbor's coolness.

The corporate and the non-profit collaborate to put on the Art Fair. As a result, there is much more than art at the event. Thursday and Friday Survivor will be having a casting call; visit the booth near the corner of University and Thayer.

Be sure to walk the gauntlet of non-profit organization booths on Liberty. Participants include: Draft Al Gore, the Republican Party, NOCIRC (an anti-circumcision group), Right to Life, Dingell for Congress, Michigan Atheists, Mott Children's Hospital, Planned Parenthood, Parents Without Partners, the ACLU and more.

And you can't avoid the many food courts. Your menu choices will include enormous portions of funnel cakes, sweet potato fries, gyros, ice cream, shish-ka-bob, elephant ears, Thai stir fry, hamburgers, chicken on a stick, and much more that you should eat only in moderation.

And good news for animal lovers--dogs are welcome.

P.S. If you find parking in a metered spot with a one or two hour limit, don't sweat. The $10 ticket you get will still be cheaper than special Art Fair Parking.

Consumer Sentiment Index--Wishful Thinking About Other People's Money

Friday the Reuters/University of Michigan Consumer Sentiment Index came in at 92.4, an increase from 85.3 in June. This unexpected leap is believed to predict increased consumer spending ahead. Good news if you have stuff to sell. Sometimes reports summarize with the shorthand "consumers are upbeat." Like little Eloise, shoppers are ready to spend, spend, spend, and charge it please! Thank you very much. It's the perfect marriage of PMA and OPM (positive mental attitude and other people's money).

The index measures consumers' expectations about spending and saving, but the Bloomberg article covering yesterday's preliminary number explains things mostly in terms of spending.

"Rising confidence backs forecasts that spending, which accounts for more than two-thirds of the economy, may pick up from a second-quarter trough."

Translation: People feel o.k., so they expect to spend more. Is it possible that their confidence is misplaced? Or is it simply enough that they feel confident? And is this confidence fact-based, belief-based or just wishful thinking?

"Economists forecast spending will accelerate to a 2.5 percent pace this quarter from an estimated 2 percent rate in the second quarter, according to the median forecast in a Bloomberg survey of economists this month. Spending rose at a 4.2 percent pace in the first three months of the year."

But how are people accomplishing this spending? Largely through consumer debt and tapping home equity, which by the way is shrinking nationally. Nationally, not just in Michigan.

And here's a fun tidbit toward the end of the article:
" The National Association of Realtors said June 6 that it expects the U.S. median home price to drop 1.3 percent in 2007. The last time the national median price fell was during the Great Depression in the 1930s, according to Lawrence Yun, an economist for the real estate group in Washington."

Take a moment with that last bit. The Great Depression. What characterized the lead up to the big one? Speculative "investing" run amok. A vast gap between the richest and poorest. Downward pressure on prices. Widespread use of credit. Hmm.

From Bloomberg:
"Added to the higher gas prices, a drop in the amount of equity homeowners can extract from their houses is hurting consumers' spending power."

Now this last sentence is quite revealing because it assumes consumers' spending power comes from tapping their assets, which are now and always have been vulnerable to a fluctuating real estate market. Consumers' spending power results from depleting their assets--from sucking the yolk out of their nest egg. But even as they spend against their future, they are confident and the numbers prove it.

UM Study: Organic Farming Can Feed the World

Lookout Monsanto, ADM, Cargill, ConAgra...a new UM study reports that "organic farming can yield up to three times as much food as conventional farming on the same amount of land—according to new findings which refute the long-standing assumption that organic farming methods cannot produce enough food to feed the global population."

From the press release:

According to lead researcher Ivetta Perfecto,"Corporate interest in agriculture and the way agriculture research has been conducted in land grant institutions, with a lot of influence by the chemical companies and pesticide companies as well as fertilizer companies—all have been playing an important role in convincing the public that you need to have these inputs to produce food."

"Organic farming is important because conventional agriculture—which involves high-yielding plants, mechanized tillage, synthetic fertilizers and biocides—is so detrimental to the environment, Perfecto said. For instance, fertilizer runoff from conventional agriculture is the chief culprit in creating dead zones—low oxygen areas where marine life cannot survive. Proponents of organic farming argue that conventional farming also causes soil erosion, greenhouse gas emission, increased pest resistance and loss of biodiversity."

Antics with Semantics or How to Insure the Invisible Partner (update)

Good news for non-heterosexual households in Michigan. Michigan State University has a plan to continue providing benefits to persons formerly known as "domestic partners." Now these family members will be called "other eligible individuals" for the sake of conforming to the restrictively interpreted language of Michigan's man/woman marriage amendment. MSU will begin a pilot program with the new language July 1 and review it annually.

According to a June 15 piece from Inside Higher Ed, "The new policy doesn’t distinguish between same-sex and opposite-sex living arrangements, and in fact it would cover people who aren’t really couples in any sense, but who merely share a home."

The message in Michigan seems to be: if you are gay or lesbian and in a committed relationship, in order to receive the employment benefits that accrue to heterosexuals in partnered relationships, your relationship must be rendered invisible. If your relationship is invisible, you can have benefits. The proponents of the marriage amendment said they didn't want to take benefits away from anyone, just clarify the definition of marriage. Mission accomplished.

Update: Late this morning, University of Michigan announced,"Effective Jan. 1, 2008, a new category of dependent called Other Qualified Adult (OQA) is being offered to all benefits-eligible U-M employees. A set of specific eligibility requirements defines the criteria required for OQA coverage."

OQAs or OEIs? Neither has the same ring as "spouse."

Related Post: "The Law is the Law"

Michigan's Economy: Time for Two Steps Forward

Earlier this week, Reuters reported that Michigan was the only state with a declining real GDP (gross domestic product) last year. A sadly unique position, but that isn't the whole story. The Free Press followed up with a more comprehensive assessment of our condition. And this is what we need, realism and hope together.

We took one step back; we are poised to take two steps forward.

From the Free Press article:

"Michigan ranked sixth among the 50 states in attracting highly educated workers." While we are seeing a reduction in manufacturing jobs, positions requiring higher education are increasing. Engineers are coming to Michigan. Let's not cut higher education funding, please.

"Michigan ranked 19th overall in the 2007 State New Economy Index, up from 34th in the 1999 version of the report and up from 22nd place in the 2002 index."
We are shifting to high-tech and knowledge-based enterprises.

Michigan "boasts a $376-billion-a-year economy, roughly the size of Sweden's, and remains a top 10 state in total output, exports and manufacturing, despite the elimination of one in four factory jobs since 1999."
In spite of shrinking manufacturing, we still have high output compared to other states.

"U-M alone has been spinning off an average of eight to 10 high-tech firms each year for the past five years, said Ken Nisbet, executive director of U-M's Tech Transfer office." Universities are doing their part to generate enterprises for the New Economy. As I said, cutting higher education funding--not a good choice right now.

Our unemployment rate is high. Our work force is shrinking. The number of businesses employing one to four people is growing and there is growth in high-tech. What does this all mean for our future? I'm not sure and neither are the professionals. As with any statistics, you'll find naysayers and optimists citing the same figures to make their cases.

Here's something true: time is not on our side. Our economy and morale cannot tolerate anymore state level budget crises. Our legislators must set aside partisanship, ideology, and electoral desires to work together on behalf of the entire state. They need to muster the same creativity and pragmatism of downsized workers starting small businesses in many of their districts. They need to think outside the hundred-year-old box of a manufacturing-based economy, and fast.

U. of M. Study: Chimps More Evolved than Humans

Rings true.

Here is the press release from University of Michigan.
Check out coverage in this article from the Times Online.

“Our results show that the number of positively selected genes is substantially smaller in humans than in chimps,” said Jianzhi Zhang, who led the study. “These observations . . . refute the anthropocentric view that a grand enhancement in Darwinian selection underlies human origins.”

U. of M. Speaks; Wall Street Reacts

Stocks Drop on Consumer Confidence

No, they don't just interview Michigan residents.

From the Federal Reserve Bank of Philadelphia website:

"Consumer confidence surveys measure individual households’ level of confidence in the economy’s performance.
The monthly Survey of Consumers is a nationally representative survey based on approximately 500 telephone interviews with adult men and women living in households in the co-terminous United States (48 states plus the District of Columbia). For each monthly sample, an independent cross-section sample of households is drawn. The respondents chosen in this drawing are then re-interviewed six months later. A rotating panel design results, and the total sample for any one survey is normally made up of 60 percent new respondents and 40 percent being interviewed for the second time."

Interestingly, "Exclusive distribution from Reuters - Effective January 1, 2007, Reuters has the exclusive right to distribute the headline survey index numbers through its news and media services, reaching an estimated 1 billion people a day. Additionally, Reuters is offering a more in-depth view of this important consumer opinion data exclusively to its customers, building on the strong base of current subscribers. The new media partnership and distribution model via Reuters establish a stable source of funding for this important survey and also provide greater transparency and disclosure of the survey results."

So really it is: Michigan Speaks; Reuters Distributes; Wall Street Reacts.

Chi Miigwetch

Sunday's Grand Entry at the 35th Annual Dance for Mother Earth, Crisler Arena, University of Michigan

Inter-Tribal Council of Michigan, Inc.

Ojibwe at MSU

Michigan Native American Arts Initiative

Nokomis Learning Center

Center for Native American Studies, Northern Michigan University

U.S. Attorney, Western Dist. of Michigan