You can’t have CONsumer CONfidence without the CON

Maybe I’m just having a bad day.  It is awfully dreary in Pittsburgh today.  Under normal circumstances  I would be cheering today’s consumer confidence number.  Coming in at 56.0, confidence is up 37% in the past month, 32% higher than expectations, and (in my opinion) entirely inexplicable.

To say I’m dubious would be an understatement.  But, before diving in and blogging, I took the time to step back, discuss the number with my partners, and try to find a reason for the new-found consumer giddiness.  Maybe people are feeling more confident because the value of their homes has stabilized.  Nope.The Standard & Poor’s/Case-Shiller index released today showed prices dropped in September from August in all but 3 of the 20 cities tracked. Perhaps unemployment is improving.  Nope.  Unemployment still has a 9-handle.  Maybe there is a wealth effect from a strong stock market.  Nope.  Month-to-date the S&P 500 is down nearly 5%.  Maybe the European crisis has finally been resolved.  Nope.  We’ve got additional nebulous gesturing from Europe, but no permanent solution.  How about oil?  Is the price dropping?  Nope.  Oil continues to nip at the $100/barrel level.

Which leads me to one of two conclusions…  Either the numbers are inaccurate (believing which would make me a conspiracy theorist), or those being polled are pixelated.

Could it be that the Holiday spirit (and its accompanying $2 waffle irons, pepper spray, and 70″ flat screen TV’s) has lifted the collective consumer mood so dramatically?  It’s certainly possible.  Based on the record-breaking Black Friday retail numbers, marketers have been effective in conning the general public into believing they need more electronics, waffle irons and expensive underwear.  After all, who doesn’t want to control their new TV with an IPad app, dressed like Gisele Bündchen while making breakfast. Creating that kind of euphoria would, most likely, spread to other aspects of the psyche.  Consider it con job contagion.

Me…  I’m not buying it.  A 4 standard deviation shift in confidence is just not believable.  Statistically, it’s darn near impossible.  It’s certainly not worth a shift in investment posture.

Consumer Confidence Sinks to 44.5 versus Consensus of 52.0

At 10:00 a.m., the Conference Board released its index of consumer attitudes — also known as the Consumer Confidence survey.  In short, the numbers were terrible.  First, last month’s confidence number was revised downward to 59.2 from the originally reported 59.5.  And that was the good news.

This month’s confidence number plummeted to 44.5 against expectations of 52.0.  The magnitude of the number rattled the stock market for a few minutes; with the DJIA falling 80 points immediately following the release.

Confidence has not hit this level since the depths of the recession in 2009.

Looking deeper into the report, we find the following:

  • Consumer expectations for the future (6 months out) dropped dramatically since last month — falling from 74.9 to this month’s print of 51.9.
  • Consumer assessment of the current situation also fell, from 35.7 to 33.3
  • Consumer assessment of the labor market weakened, with 49.1% or respondents replying that “jobs are hard to get.”  This compares to last month’s 44.8%.
  • Those responding that “jobs are plentiful declined to 4.7% from last month’s 5.1%
  • Expectations for inflation over the coming year remained unchanged.

These confidence numbers contrast dramatically with the recent, surprisingly strong, retail sales report.  Earlier in the week, retail sales were reported up while savings rates were down.  That isn’t the type of behavior one would expect from a consumer lacking confidence.

Considering that contrast, it is difficult to draw any real conclusion as it relates to stock and bond prices.  Perhaps the volatility experienced in the markets, coupled with governmental tinkering, Fed jawboning, and the debt downgrade has caused consumer sentiment to flip-flop rapidly.

Or perhaps the insatiable need for IPads supersedes the feelings of worry.

It would make for an interesting psychological study.