Consumer Optimism: Unwarranted or Inevitable?
The Dow Jones Industrial Average ended this May down 7.9% for the month, its largest monthly decline since February 2009 and the biggest percentage drop for May since 1940. However, the Thomson Reuters/University of Michigan gauge of consumer sentiment showed that consumers’ view of the state of the U.S. economy actually became more optimistic in May. Between April and May of this year, the gauge rose 1.4, from 72.2 in April to 73.6 in May. According to an article by the Wall Street Journal, the rise in consumer optimism is derived entirely from consumers’ more positive outlook regarding the direction of the economy. But with stock prices swinging wildly and all three major markets – Dow Jones Industrial Average, NASDAQ Composite, and S&P 500 Index – in the red for the year, is this consumer optimism misplaced?
In a recent Wall Street Journal article, John Hussman of the Hussman Funds explained that “technical indicators have only been this bad 19 times before in the last half century” – and that the market plunged about 20% on average in the ensuing year. Some experts, like stock historian Russell Napier, believe that what many had hoped was the beginning of a bull market in the last 14 months may actually have been a bear market rally and that we could be in the midst of a decadal slump that began in 2000 and still has several years to go.
It may be that consumers remain cheerful because the violent swings in the stock markets did not correspond to a measurable effect on their wallets. A report from the Commerce Department showed that the gradually improving job market added 290,000 positions in April and personal income increased 0.4% in the same month. Moreover, RBS Securities Inc. analyst Michelle Girard says that the labor market rebound has helped reinforce the strong outlook for consumer spending in the coming months.
Thanks to Flickr for the photo.
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