What is Your Confidence, Consumer?

Have you checked your confidence lately?  Listen closely and look around you.  Here is what I mean:  There are more houses in my upscale urban neighborhood listed for sale than ever before, and the trend is not declining.  No one that I know of is making any large purchases (cars, computers, etc), rather, it appears that the people I know are downsizing their lives.  Local businesses in the thriving community where I live are still shutting their doors, and this includes restaurants.  Recently we visited one of the best sushi places in town and it was sparsely populated.  I am only one person, but I ask you to look around and observe what you see.  What’s going on?  Are consumers confident?  Are you confident?  I’m just not feeling a recovery.  It seems that everyone is on hold.

The consumer confidence numbers for September were just released, and they’ve turned downward again.  Not by much, but still not an upward trend.  Of course, these numbers were completely overshadowed by the uptick in housing prices that was also reported today.  See why this may be a “dead cat” bounce.  The September consumer confidence numbers showed a dip after slightly improving in August, indicating that consumers are still quite apprehensive about the economy and employment.  Although consumer confidence is considered to be a “lagging” economic indicator (rather than predictive), it is still important to watch the trend to gauge what consumers are doing.  Consumer confidence rose sharply from March to May and since then has been moving sideways.

Regardless of the fact that the consumer confidence index is considered a lagging indicator, it does have the potential to impact markets and the psychology of the market.   If consumers aren’t spending, what does that mean for retailers during the holiday season?  It is still very difficult to get financing on a primary or even a secondary property.  It is difficult for business owners to get credit.  I know of some private companies that are repackaging and selling consumer debt for a handsome profit.

Remember, consumers account for significant portion of the spending in our economy!  If consumers aren’t buying, businesses aren’t growing revenues, which in turn means that businesses are either not hiring or continuing to lay people off.  It can be a vicious cycle and it could perhaps mean that we are entering into a deflationary period.    If that is the case, stocks may suffer, and commodities may suffer even more so.