Consumers: Saying One Thing, Doing Another

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September 1, 2011 by   - () Leave a Comment

Consumer confidence is reflected in part by the purchase of RVs such as travel trailers and fifth-wheels. Retail purchases in 2011 (darker bars) were above 2010 performances (lighter bars) each month until June. Does this reflect a decline in consumer confidence? Perhaps. Source Statistical Surveys Inc., Grand Rapids, Mich.

Economists have advice for anyone worried that consumers are too fearful to keep spending: Look at what they're doing, not what they're saying.

A survey of consumer confidence shows Americans were spooked early this month by the standoff over the debt ceiling, a downgrade of U.S. long-term debt and a swoon in stock prices.

But maybe only temporarily, according to an Associated Press analysis.

If stock prices stay steady, consumers will likely keep spending, and the economy should improve modestly in the months ahead, economists say. Most downplayed the results of a Conference Board survey released Tuesday (Aug. 30) that showed consumers were in a gloomy mood in early August.

"They tend to register their anxiety about the future in these surveys without actually curtailing their spending," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ.

The Conference Board said its consumer confidence index sank to 44.5 in August, a 15-point drop from July. That was a much sharper fall than analysts had expected. And it brought the index to its lowest point since April 2009. A reading above 90 would show the economy was on solid footing.

The report coincided with similarly glum results from a survey of business and consumer sentiment in Europe. In that poll, European retailers were pessimistic about the future, and consumers were fearful of losing their jobs. A major factor was Europe's debt crisis.

For August, economists don't expect Americans to cut their spending sharply, if at all. Most foresee consumer spending, which drives about 70% of the economy, rising faster in the July-September period than the preceding three months.

Ken Perkins of Retail Metrics, a research firm, noted that the mood of consumers has been downbeat all year. Yet sales at retail chains have remained relatively healthy.

"There's been a little bit of a disconnect," Perkins said. "Consumers say one thing and do another."

Ken Mayland, president of ClearView Economics, said he doesn't even pay attention to the Conference Board's survey or a similar one put out by Thomson Reuters and the University of Michigan.

"I've found that these confidence indicators can lead you astray," he said.

Mayland looks instead at the savings rate, which reflects consumers' actual behavior. On Monday, the government said the household savings rate dipped to a four-month low of 5% in July.

"The tempo of the economy seems like it's picking up a bit," Mayland said.

He thinks lower gasoline prices will make consumers more likely to spend on other goods and services.

One reason consumers sketched such a dim outlook on the economy in the Conference Board's survey earlier this month was a sinking stock market — which was followed by wild price gyrations. Economists say surveys of consumer confidence tend to be heavily influenced by stock prices.

The Dow Jones industrial average tumbled more than 9.5% from Aug. 1 to Aug. 18, when the survey was taken. And during the week that ended Aug. 12, the Dow swung more than 400 points on four consecutive days for the first time in its 115-year history.

Ken Fisher, CEO of Fisher Investments in Woodside, Calif., said the Conference Board's results show what he and others already know: Consumer sentiment mirrors movements in the stock market. In the short run, when stock prices drop, so does consumer confidence.

The only difference, Fisher said, is that the stock market is a real-time measurement. And the consumer confidence survey takes a couple of weeks to collect results.

From Aug. 19 through the close of trading Tuesday, the Dow had rebounded about 5.2%. Those gains, if sustained, could give consumer confidence a boost in September.

"We wouldn't be surprised to see confidence begin to bounce back over the next few months," said Paul Ashworth, an economist at Capital Economics.

Some evidence for that can be found in the Conference Board results themselves. As anxious as consumers say they are about the future, the survey showed that, compared with July, more of them plan to buy a car or major appliance within six months. And more said they planned a vacation.

Perkins said that despite all the turmoil earlier this month, he expects sales at retail chains to increase by about 5% in August from July.

"I wouldn't describe it as going gangbusters," he said. "But it's been hanging in there."

So far, it's unclear how retailers fared in August.

A better picture of retail sales in August will emerge today, when many big retailers will release sales reports based on revenue at stores open at least a year.

U.S. auto sales, 2007-2011. Data courtesy of Y Charts.

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