Consumer Sentiment Drops to 28-year Low

Posted by Patrick O'Connor on 5/16/08 12:12 pm

The University of Michigan Consumer Sentiment Index continued its rapid plunge since July 2007 by falling an additional 3.1 points in the first half of May.  The index is now at 59.5, its lowest level in 28years.

Scott Hoyt at Economy.com is particularly troubled by the result:

“This level of confidence is not only consistent with a recession, it is becoming suggestive of a severe recession.  The index was almost 4.5 points below the lowest level it reached in the recession in1990 and well below its lows this decade.”

Mr. Hoyt pointed out in his analysis that the government’s tax-rebate checks have not helped thus far.

“The continuation of the [Michigan index] declines despite the initial wave of rebate checks being sent to consumers is disconcerting.  With its emphasis on consumer finances, the Michigan index would have seemed to be the most likely to receive a lift from the stream of cash consumers are receiving.”

The Michigan index was affected a great deal by rising food and energy costs.  In fact, food prices are now up more y/y than energy!

All said, it does not look good for consumer spending near-term.  For the record, we are underweight consumer stocks and overweight energy- and food-related stocks, such as fertilizer companies.

Click on the consumer tags in the left column of the All Cap Blog’s main page where it says “popular tags” to see all posts related to consumers. 

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