There may not be a recession but it feels like one -- and a very deep one -- to the consumer. The Reuters/University of Michigan consumer sentiment index slipped further in the final June report, to 56.4 for a 3 tenth dip from mid-month and a 3.4 point drop from May. This is the third lowest reading for the series which goes all the way back to 1952 (lowest readings are 52.7 April 1980 and 51.7 May 1980).
The expectations component, which is the leading component, came in at 49.2, up 2 tenths from mid-month but down nearly 2 points from May. Other lows for the expectations component are 50.9 in October 1990 and several 44 readings through 1979 and 1980. The current conditions component, in data going back to 1978, is at its lowest since the early 80s, down 1.1 points from mid-month to 67.6 for a nearly 6 point drop from May. Low for this component is 61.7 in May 1980. The records speak for themselves.
One reason for the deep weakness in sentiment is inflation. Inflation expectations are severely elevated but at least steady, at 3.4 percent one year out and 5.1 percent five years out. Gas prices during the July 4 weekend will be a big factor in these readings for July.
A slowly contracting jobs market is definitely another reason behind the unusual weakness in confidence as of course are troubles in the financial sector and financial markets. But the economy is expanding -- and at an increasing rate based on quarter-to-quarter GDP data and on early indications for the second quarter which will benefit from very strong consumer spending in April and May. Stimulus checks may not be helping confidence but they have boosted retail sales and made for a rare surge in personal income in data reported earlier this morning.
But of all economic data, consumer confidence measures, including both today's report and Tuesday's report from the Conference Board, are the weakest. The consumer in fact, based on these numbers which go back as far as any data set, appears to be in a deep and rare depression. Consumer confidence data don't always match up with changes in consumer spending, such as now, but these reports if nothing else suggest that the consumer will hunker down in the months ahead, spending less on discretionary items and more on basic goods. There was no significant reaction in the financial markets, at least not immediately, but these results will erode demand for risk and strengthen demand for safety -- a minus for stocks and a plus for Treasuries.