Why Isn’t The American Consumer More Optimistic? by Eric Bush, Gavekal Capital
The financial crisis has had a lasting effect on the psyche of the American consumer. Personal consumption expenditures (SAAR) are an impressive $2.1 TRILLION higher than the peak in 2008. And on a longer view, the dip in PCE during the financial crisis can be seen but it hasn’t fundamentally altered the slope of the series.
So why then are the consumer surveys in the US failing to break out to pre-2008 levels? And in most cases, consumer surveys are turning over below pre-2008 levels. Let’s take a quick look at three consumer surveys out there.
The Bloomberg Consumer Comfort Index has fallen from a high of 47.9 in April to 40.5 as of 7/24. The series began in 1999 and from 1999-2000, the average for the index was a robust 64.22. The tech bust seems to have moved the consumer’s comfort level down to a new equilibrium level. From 2002-2007, the index averaged 43.8. Since 2009, the index has only been above the 2002-2007 average level for a total of 14 weeks (all this year). The average level of the index since 2009 is just 31.5.
Moving on to the monthly Consumer Confidence Index, this series has a much longer history going back to 1967. The highest level it ever reach was in 2000 when it hit 144.7 (twice). The lowest level was seen in the financial crisis when the index read just 25.3 in 2/2009. In the table below we show the high, low and average level during each recovery. Outside of the brief “recovery” in 1980-1981, this current recovery has had the lowest “high” level of any recovery since 1966 and this recovery has had the lowest “low” level and the lowest overall average by quite a large margin. No other recovery has had an average consumer confidence level below 80 while in our current recovery the consumer confidence level has averaged out to 69.4.
Finally, the Michigan Sentiment survey shows pretty much the same results as the Consumer Confidence survey. Consumer’s have felt less optimistic, on average, during this recovery than they had during any other recovery. And again, this survey has started to turn over since making recovery highs earlier this year.
All in all, it seems that the financial crisis still lingers in the back of the mind of the American consumer. Whether this is permanent or not will only be determined once the economy moves back into a recession. If previous optimistic levels are never reached, it may be a sign that the American consumer has moved into a more permanent pessimistic mindset.
