Saturday, April 26, 2008

Breaking the Mold


Yesterday the Conference Board reported ( that March consumer confidence fell to 64.5, just a tad above its 61.4 low of five years earlier.

You can update the chart below in your mind’s eye with the most recent figure. Notice that confidence had begun to recover following the 2001 recession. Then came the Enron-induced stock-market slump and the Iraq invasion. That reduced confidence to its 2003 low point. As soon as Saddam fell, the index and the economy rebounded.

Now the economy and the index have fallen again. If confidence drops below 60, it will be down to levels reminiscent of the 1991 Gulf War and the 1990-91 recession as well as the recessions of 1981-82 (10% unemployment) and 1980 (15% inflation). If confidence drops below 50, we’ll begin exploring depths the index has never reached.

Consumer Confidence

(Click on chart to enlarge)

Recessions shaded

On April 24, the day before the Conference Board released its consumer-confidence estimate, the Census Bureau reported 526,000 new-home ( sales in March. Update the following chart in your mind’s eye with that number and you’ll see that this series has also fallen to levels not seen since the 1990-91, 1981-82 and 1980 recessions. New-home sales have not only fallen by a record absolute amount, they have also fallen relatively more than in past slumps

New-Home Sales

(Click on chart to enlarge)

Recessions shaded

These charts also reveal that declines of this magnitude always accompanied past recessions. Since the real-estate debacle initiated the current slump, and a number of leading real-estate experts say that real-estate will continue to drop, it seems reasonable to assume that these indexes have further to fall. Moreover, if gasoline prices keep going north, helping to propel confidence south, what chance do consumer expenditures have? It doesn’t look good.

Yet there are those who say that the worst is behind us and that we’re not in recession and there won’t be one. If that’s true, we’ll have broken the mold, and consumer confidence and new-home sales just don’t mean what they once meant.

(The charts were taken from [Click on Seminars and then Charts.] Go there for additional charts on the economy and a list of Economic Indicators.)

© 2008 Michael B. Lehmann