Has Consumer Sentiment Rebounded, as Gas Prices Fall Back?

By
Real Estate Agent with Dean's Team - Keller Williams Realty Partners Chicago IL

Here in Chicago, gas prices have fallen just over 25% from their summertime peak - at over $4.50/gallon of regular gasoline in parts of the city last July.  In other parts of the U.S., where local and county gas taxes are not as oppressive, gas has fallen way south of $3.00 per gallon!

How has this affected Consumer Sentiment in general?  Do folks have a more optimistic outlook about the economy?  The housing market?

No, unfortunately - according to the latest University of Michigan/Reuters Consumer Sentiment Index published last week.  The index plunged this past month by 12.8 points - the largest fall in the index's 50-Plus Year history.  The current index stands at 57.5, erasing recent gains over the previous two months, and nearly eclipsing the historic low in the Consumer Sentiment Index. 

In September, as gas prices began to fall quickly when the price of a barrel of crude oil tumbled from its summertime, over-$147/barrel high, to below $100, the Consumer Sentiment Index stood at 70.3.  (Today, a barrel of crude comes in around $70!)

But today, consumers have become extremely concerned about reduced access to most credit, potential loss of their jobs, and shrinking values of their personal and retirement assets. 

The downturn leaves many economist fearing a major decline in Consumer Spending during the critical Third and Fourth Quarters, 2008.  Many have predicted the largest spending fall off in 28 years.

According to Joshua Shapiro, Chief U.S. Economist at MFR, Inc., "There exists a real possibility of a sharp drop in spending, perhaps even something akin to the collapse that ensued just after President Carter ordered credit controls to be implemented on March 14, 1980.  In that episode, real consumer spending fell at an 8.8% quarter-to-quarter annualized rate in the second quarter of that year and real GDP fell at a 7.8% rate."

See our post today at BlogChicagoHomes.comfor more info, as well as a link to Kelly Evans' post in the Real Time Economics Blog via The Wall Street Journal, from last Friday, October 17th.

DEAN & DEAN'S TEAM CHICAGO

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Rainer
7,939
Terri Kincaid
ERA Brokers Consolidated - Mesquite, NV

I have several buyers on the fence, but we are seeing more activity here, people are just taking their time.

Oct 19, 2008 04:44 PM #1
Rainmaker
717,706
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

Not around here...but I live in NY near NYC.  We are expecting masses of layoffs and a complete mess with respect to prices.  People are clinging to the fence even more around here.

Oct 19, 2008 04:47 PM #2
Ambassador
1,723,639
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Dean,

5 years ago even the idea of paying $4 for a gallon of gas would sound absolutely crazy, but now, when the price fell under $3 per gallon, people are actually  happy. So much for just perception

Oct 19, 2008 04:53 PM #3
Rainmaker
1,005,518
Karen Anne Stone
New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX
Fort Worth Real Estate

Dean:  Over the weekend, I filled up with gas at $2.63 a gallon.  My daughter said she even found $2.55.  Quite a change from five months ago.

Oct 19, 2008 05:12 PM #4
Rainer
120,529
Carol Swain
Keller Williams Real Estate - Langhorne, PA
Realtor, -www.swainsells.com- Bucks County, Pa

I am very excited gas prices came down!  Last week I filled up for 2.85 a gallon, this week I filled up for 2.62 a gallon.  Keep coming down!

Oct 19, 2008 09:53 PM #5
Rainmaker
368,263
Dean Moss
Dean's Team - Keller Williams Realty Partners Chicago IL - Chicago, IL
Dean's Team Chicago IL Real Estate Team

Karen/Carol/Folks -

We're still over $3.30/gallon for gas here in Chicago.   Our taxing structure is ridiculous here - so we go up higher, and come down less, than most of the rest of the country.

It's amazing when we travel and rent a car - feels like we're going back in time.

A few months ago, a cousin of mine thought that lower gas prices would jumpstart the housing market, by reestablishing confidence that things were headed back to normal.

That was before our current drama on Wall Street, however.

DEAN & DEAN'S TEAM CHICAGO

Oct 19, 2008 10:02 PM #6
Anonymous
Anonymous

The media have been relentlessly playing up the doom and gloom all year. Should Obama be elected the media will magnify every positive stat about the economy and housing.  Then the psychology of the country will gradually turn around.

Oct 20, 2008 06:50 AM #7
Rainmaker
368,263
Dean Moss
Dean's Team - Keller Williams Realty Partners Chicago IL - Chicago, IL
Dean's Team Chicago IL Real Estate Team

Mr. or Ms. Anonymous -

Interesting comment - but I think turning Consumer Sentiment around will involve more than just SPIN.

DEAN & DEAN'S TEAM CHICAGO

Oct 20, 2008 08:12 AM #8
Rainmaker
1,026,342
Kevin J. May
Florida Supreme Realty - Hobe Sound, FL
Serving the Treasure & Paradise Coasts of Florida

Dean, this respite from $4 a gallon gas prices is slightly refreshing.  My concern will be the jobless rate and GDP figures in January. 

Oct 20, 2008 08:27 AM #9
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Dean Moss

Dean's Team Chicago IL Real Estate Team
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