Consumer Sentiment is Down, But What Does That Really Mean?

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"One of the worst readings ever” and a big recession signal said bond guru Jeffrey Gundlach. David Rosenberg agrees.

Most Recessionary Signal Yet

Rosenberg Agreement

The Expectations Index plunged from 97.7 in December to 87.3 In January. The Present Situation Index is at 169.6, a bit lower than the reading in December.

Consumer Expectations Under Fire

Factory Orders

Two Out of Three Ain't Good

Charles Schawb's Chief Investment Strategist, Liz Ann Sonders, says Two Out of Three Ain't Good Leading Indicators Falter Again

​Every month, shortly after the LEI’s release, I put together a “dashboard” which includes the table below. It lists all 10 components that make up the LEI as well as their current level. More importantly, I also include the latest trend; which is often more telling than the level. It’s one of many visuals associated with my oft-expressed view that when it comes to the relationship between economic data and the stock market, “better or worse tends to matter more than good or bad.”​

​Every end has a start

It’s customary for the LEI [leading] to begin to decline while the CEI [coincident] is still rising; which is the case presently. Every end of a cycle has a start. It’s possible that the start of this cycle’s end began with the September peak in the LEI. It may be too soon to declare it probable, but not too soon to declare it possible.

What does that really say? Do these indicators tell us anything we don't already know?

What We Know

  1. We just went through the longest government shutdown in history. 800,000 people missed two paychecks but will be repaid. Contractors will not be paid.
  2. Apple warned. Moreover, Apple Lost a Record $463 Billion in Market Cap in Three Months.
  3. NVDIA and CAT Hammered on Warnings, Soft Demand in China
  4. A phone maker, as chip maker, and an industrial equipment maker all blamed a slowdown in China.
  5. Brexit negotiations are in shambles and the clock is winding down. In Brexit Backstop Madness, a UK Renegotiation Amendment Passes while the EU Response was "No Renegotiation".
  6. People on both sides of the aisle are upset over the wall.
  7. Trump's on again off again negotiation strategy has rattled the markets.
  8. The last few housing reports have been terrible. The most two recent new home sales reports were delayed.
  9. Soft indicators such as regional Fed reports have weakened.
  10. Portions of the yield curve have been inverted for well over a month. I have been writing about this since December 2.

Leading or Coincident Indicators?

In essence, these alleged "leading indicators" tell us little more than we already know simply by looking at the data.

We do not know what happens from here.

Watch the Curve

Gundlach cites leading indicators. I think number 10, yield curve inversion is the most significant.

If the curve suddenly steepens, with the front end of the curve tumbling, recession will be at hand.

Mike "Mish" Shedlock

Comments (9)
No. 1-8
gregggg
gregggg

Money should be freezing up right now with the 2-10 spread being only 14 basis points. There's not much room for risk mitigation.

truthseeker
truthseeker

Mish more than anything else you have said all these years that debt is deflationary and that the Fed could not forever hold up the credit markets, the banks, equity markets and the whole world economy so that finally, the collapse would occur and so here we are 10 years later after the 2008 bailout of the banks, QE1,2 3 and 20 trillion dollars later and it’s finally beginning to happen, and it’s really scary where all this is going with the country and the world in so much real danger.

2banana
2banana
  1. Interest rates are rising

  2. The Great QE unwind continues

  3. Bubbles everywhere are deflating

Sechel
Sechel

Never quite understood the value of the consumer confidence number which is merely a survey. How accurate can a survey be especially one subject to a media effect. Surely there must be a better measure of future consumer spending. At lest with homes we can look to mortgage applications

Realist
Realist

As with all economic data, more is better. I agree with Mish that the US and world economies are slowing. I also think that governments and central banks will respond to the slowing. I am still not expecting a recession this year.

Sechel
Sechel

We just had three weeks of the media blasting stories about the shutdown, more stories about trade wars. Of course consumer sentiment is down

Casual_Observer
Casual_Observer

Employment to population ratio is still flat after 2 years of job growth. The Fed is telling the government they need to solve coming crises by raising rates and removing liquidity. There will be a corporate bond meltdown. The crack addict is running out of crack.

Casual_Observer
Casual_Observer

Any thoughts on the ADP jobs report ?