Tuesday, March 27, 2007
consumer confidence wire is tripped
The Present Situation Index, which measures how shoppers feel now about economic conditions, increased slightly to 137.6 from 137.1 in February. The Expectations Index, which measures consumers' outlook in the next six months, declined to 86.9 from 93.8.
this places the future-less-present figure at a new low of (-50.7). the history of the indicator is that recessions are preceded by readings under (-20), with more severe and considerable instances being preceded by (-50).
this page has been tracking this figure informally since march 2005 with the fearful expectation that it might eventually dip below (-50) -- and now that day has arrived. subsequent posts followed in september 2005, early february 2007 and again late.
with the housing market in a full-fledged rout, manufacturing in a recession, s&p profit growth slowing and retail weakness now being observed, all in conjunction with a 15-month-old inverted yield curve, sensible observers must conclude that the conditional probability is that recession is now imminent -- more probably than not a severe one.
how much longer -- or if -- equity markets can continue to go north under these circumstances is highly debatable. the pace of fed money creation offsetting real contraction in lending -- keeping broad money supply rising in spite of corrective action in banking -- will be key.