Consumer Confidence: The Tail Is Wagging The Dog

By
Real Estate Broker/Owner

On May 26th, as a result of consumer confidence surging despite a deteriorating job market and eroding home values, I arrived at the conclusion that the stock market rally was the reason for the increase in consumer sentiment, there was no other explanation. 

The flaw in this "confidence" was of course that the stock market rally had no economic basis, it was built on sand.  The source of the rally was hope rather than an actual healing of the economy.  The tail was wagging the dog.

Well, here we are on July 10th and the market looks to be returning to low tide.  Not surprisingly the result of a recent Reuters/University of Michigan Surveys of Consumers reveals that the index of consumer expectations plunged to 60.9 from June's final reading of 69.2.  Additionally, the index of current economic conditions fell to 70.4 from June's final reading of 73.2.

According to Reuters, "Consumers concluded that the economic downturn would last longer and their personal finances would not recover as quickly as they had previously expected".

No kidding.  And why would they?  Even CNBC's Jim Cramer has written that Obama's economic policies, or the lack of an effective stimulus, has hurt the economy.

Comments (5)

Demos Kukeas
Amerivest Realty - Naples, FL

I wish we could. No one can see the low when it is happening.

Jul 10, 2009 05:13 AM
TIM MONCRIEF
Tim Monciref - Austin, TX
Over 2,000 homes sold…..

The market revolves around consumer confidence and consumer confidences revolves around the market.  Actually either can influence the other.  Even though confidence in the market may not make since at times, if it last long enough it can improve a market.  Overall we are a long way from where we were in October.  At least we are not in a total state of panic. 

What boggles my mind is why our government was not feeding into the optimism, but has decided to look into programs that is getting people nervous about the repercussions.  I don't get the rationale.

Jul 10, 2009 05:24 AM
Todd Clark
eXp Realty LLC - Tigard, OR
Principle Broker Oregon

Then we have a situation where they want to do things to even make it worse. I am worried for this country and I think as we are seeing today with democrats saying no to the president and the health care, maybe the first sign of people open their eyes.

Todd Clark - www.LivingBeaverton.com

Jul 10, 2009 07:03 AM
Jim Crawford
Maximum One Executive REALTORS® - Atlanta, GA
Jim Crawford Atlanta Best Listing Agents & REALTOR

The best description of what we are going through is a slow moving train wreck.  This is a 10,000 car train and even though we have been notified that the train wreck had already occurred, we are someplacenot yet quite the middle and have not felt all the jolts yet.  This is not over yet by any stretch of the imagination.  We will be feeling this for years to come.

Jul 15, 2009 11:50 AM
Mark MacKenzie
Phoenix, AZ

Tim:  I don't understand it either.  I do think though that the stock market is being driven by traders, it has a very low volume.  Consumers for better or worse are feeding into this.

Todd:  Agreed.  The new policies on energy and health are likely to prolong the recession.

Jim:  That is a great analogy.  There are going to be ripple effects for the next several years.

Jul 17, 2009 03:03 AM