Consumer confidence should be followed closely, as it gives investors an idea about consumer spending and where the U.S. economy might be heading. When consumer confidence rises, it means U.S. citizens feel good about spending. Consumer spending accounts for about 70% of U.S. gross domestic product (GDP).
Unfortunately, consumer confidence in the U.S. economy is plummeting—the last thing you want to see when you are looking for economic growth.
U.S. consumer confidence fell drastically in January. The Conference Board, which tracks the Consumer Confidence Index by conducting a monthly survey, reported that the index declined to a level of 58.6 in January from 66.7 in December of 2012—a drop of 12% over a one-month period. (Source: The Conference Board, January 29, 2013). The Consumer Confidence Index is at its lowest level since November of 2011!
Examining the report even further, it shows that 22.9% of the respondents to the survey expect their incomes to decline. That number was 19.1% in December. In addition, the number of people claiming that it’s difficult to get a job has increased to 37.7% from 36.1% in December.
This shouldn’t be a surprise to my Profit Confidential readers. Consumer confidence fell for the very reasons and concerns I have been writing about in these pages for months.
Since the financial crisis began, so-called economic growth in the U.S. economy has been insignificant at best. While some politicians (and even analysts) might continue to speak about jobs creation in the U.S. economy, the fact of the matter is that jobs growth is hardly keeping up with new people entering the workforce.
On top of the bleak employment picture, consumers are worried about their finances, as they simply don’t have a lot to spend. For example, from 2011 to 2012, weekly inflation-adjusted earnings for full-time wage and salary workers in the U.S. economy actually declined $1.00—from $336.00 in 2011 to $335.00 in 2012. (Source: Bureau of Labor Statistics, last accessed January 29, 2013.) One year later, things cost more, but are you making the same amount of money?
For economic growth to really happen in the U.S. economy, consumer confidence has to increase so consumer spending can rise. This just isn’t happening right now.
Where the Market Stands; Where it’s Headed:
It’s up, up and away for the stock market. This morning Exxon Mobil Corporation (NYSE/XOM) reported earnings above expectations and the U.S. jobs number report for January is being taken positively by investors. I have been waiting for the final speculative blow-off for the stock market rally that started in March of 2009—we’re living through it right now.
What He Said:
The year “2000 was a turning point of consumer confidence in high tech stocks. 2006 will be remembered as the turning point of consumer confidence in the housing market. That means more for-sale signs going up, longer time periods to sell homes, bloated for-sale inventory and eventually lower prices for homes. But this time, the turnaround in consumer confidence will have a bigger impact on the economy. Hold onto your seats, this is going to be a nail biter.” Michael Lombardi in Profit Confidential, August 24, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.