The post-hurricane economic data is starting to roll in, and the conclusion is…less than conclusive. Or, perhaps we should say that one can find whatever one wants to find.

Economic forecasting isn’t cloud gazing, although at times a lesser soul might be forgiven for confusing the two. Consider today’s numerical releases: the Conference Board’s consumer confidence index and Johnson Redbook Retail Sales Index. First the consumer confidence gauge, which crashed down to a reading of 86.6 for September from 105.5 in August. September’s result is the lowest since October 2003, the Conference Board reports.
What explains such descending behavior for this measure of consumer expectations? “Hurricane Katrina, coupled with soaring gasoline prices and a less optimistic job outlook, has pushed consumer confidence to its lowest level in nearly two years and created a degree of uncertainty and concern about the short-term future,” says Lynn Franco, director of The Conference Board Consumer Research Center, in a press release.
Part of the sliding confidence was tied to the outlook for jobs, or the lack thereof. Only 14% of survey respondents said they expected more jobs to become available in the coming months, down from 16.4% a month ago. Meanwhile, those who expected fewer jobs represented 25% of responses in September, up from 17.3 percent in August.
After poring over the report’s finer points, Scott Hoyt, senior economist at, writes today: “The share of consumers planning to buy cars and appliances both dropped sharply, although the share planning to buy homes held steady.” Worries that prices generally are headed higher were also reflected in the plunging consumer confidence index, he continues. “In a knee jerk reaction to soaring energy prices, the average expected rate of inflation over the next 12 months jumped to its highest level since at least the late 1980s.”
Sounds fairly dismal, eh? Indeed it does. But Joe Sixpack and his friends seem strangely immune to the cautious reading that permeates the Conference Board’s gauge. As evidence, consider today’s release of the Johnson Redbook Retail Sales Index for the week ended Sept. 24, vs. Aug. 24. By that measure, retail sales advanced a healthy 2.9% for the month through last Saturday, reports Confidence among consumers may be declining, but spending continues moving in the opposite direction, which is to say, up. If this gauge has any relevance, perhaps the government’s retail sales report for September, due for release on October 14, will show more spending strength than some expect.
But such continued spending doesn’t convince everyone, starting with the bond market. The yield on the 10-year Teasury, at around 4.25% as we write this afternoon, is hardly shooting skyward in anticipation of continued consumer spending and/or higher inflation born of increased energy prices. The fixed-income set presumably thinks Joe has finally gotten in over his head, and will prefer to start saving his pennies in the very near future.
The thought has occurred outside of bond trading pits too. “We may now see a pullback in spending,” Quincy Krosby, chief investment strategist for The Hartford in Hartford, Connecticut, tells Bloomberg News today. “This winter and this Christmas shopping season are going to be the test case, and we’re going to see if this is the tipping point for the consumer.”

One thought on “BOTH SIDES NOW

  1. The Prudent Investor

    I am getting the feeling that all lagging indicators are meaningless because of the massive hurricane distortion. The displacement of who knows how many people and the overnight house price deflation in the affected areas will make it difficult to assess whatever indicators exactness. We truly are in uncharted territory. And the new problems in the southern US only mask the mess in Iraq but will not make any of the dozen major problems the US is facing disappear.

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