The sharp decline reported last week in one confidence gauge, from Reuters and the University of Michigan, has sent up caution flares. Their March index of consumer sentiment sank by 10 points, the 10th-biggest drop on record and a reversal of five prior months of gains.
Yesterday, the Conference Board confirmed this decline when they announced that their gauge of consumer confidence fell to 63.4 this month from 72 in February. The drop was driven by a less-optimistic view of the future as was reflected in the Reuters/University of Michigan consumer survey. While that drop would be somewhat more muted than the Michigan survey, it may be more worrisome.
That is because the Conference Board's survey places a slightly greater emphasis on labor-market prospects. And it is quite different, and potentially more damaging, as consumers weren't just pulling back on discretionary purchases because of higher fuel prices, but again fretting about their jobs, too.
That concern has hampered consumer confidence throughout this middling economic recovery. And while the recession may have officially ended in June 2009, Tuesday's data confirms that confidence today is actually weaker, on average, than it was at the low point of the downturn. Given that, the choppy nature of consumer spending, and the recovery more broadly, isn't too surprising.
The key question in the Reuters/University of Michigan consumer survey is: "Do you think the economy a year from now will be better, the same or less than it is today?" The answer to this question is a key indicator of future consumer spending and leads the U.S. stock market and all other early warning signals of economic direction.
The broader message is clear: Consumer sentiment remains unusually weak at this stage of the recovery. And growth isn't likely to pick up until confidence does.
Source: The Wall Street Journal, March 28 & 29, 2011