Consumer confidence among US consumers fell unexpectedly as rising fuel prices are blamed for taking a toll on the economic recovery. The consumer sentiment index fell to 74.3 from 75.3 the month prior. The index is currently at its lowest point of the year. Economists polled were expected the index to go to 76.
Gasoline has advanced 17% from the beginning of the year due to the Iranian conflict of words. Gasoline is being blamed for turning consumers to pessimistic. This decrease in consumer confidence leads one to believe that the rally of 2012 may be coming to a close. Consumer spending accounts for 70% of our economy. If people are not spending then we are going to have some problems.
This is yet more supporting evidence for my thesis that we will be seeing a correction in the next month or so. The troubling part is that although consumer confidence is down, the market is still rallying. Why are investors continuing to ignore bad news? Do they believe that if they just ignore the problem that it will go away? Regardless of the reasoning, this is certainly an interesting market.
The bond market rally is coming to a close which should provide an interesting shorting opportunity for investors as well.
As for gas prices, we could see them drop here in the next little bit after Britain and the US said that they would be tapping emergency oil reserves to help bring down the price of oil and saving the economic recovery. If the oil reserves can make a difference, then we can expect this consumer confidence downgrade to be a one time thing, at least in the first half of the year.
The reason being is that other than gas prices, consumers are upbeat. Job growth is gaining traction, there are more credit opportunities and housing is cheap. There is no way you can not be somewhat upbeat. When you have oil weighing down on your wallet it can be hard to see some of the other positives that are around you. Spending a decent chunk of your paycheck on gas is not ideal when you could use that money to take the family on a vacation or out to a nice dinner. This is why consumer confidence is down.
The main point to take away is that yes consumer confidence is down and is very well could stay down. We do not know how much oil we will be tapping so it is likely that it will have no big significance. Also, be ready for a pullback. We have climbed too far too fast and now bad economic reports could have investors questioning the conditions and the overall economic condition.