A Quick Observation on University of Michigan Consumer Sentiment

07-19-2010 • Ritholtz.com

The dive to 66.5 in the University of Michigan consumer sentiment for July takes the index back to August 2009 levels. Just awful. Even by November 2002 (12-months after the recession ended in 2001) consumer sentiment was at 84. Even with the bounce-back in the equity market, the volatility is crushing confidence — along with increasing signs of slowing economic growth. A 9.5 point plunge in this indicator does not happen too often — you have to go back to the aftermath of the Lehman collapse in October 2008 and before that in September 2005 after Katrina. The decline we saw, believe it or not, was nearly as big as the plunge we saw right after 9/11. Then, you have to go back to August 1990, when U.S. troops began to amass in the mid-East for the eventual war with Iraq (operation Desert Storm). To put this latest dive into perspective it was twice as severe as the decline after the October ‘87 crash — then again, the economy was booming at a 7.0% annual rate in the fourth quarter of that year. And, then prior to that, guess what? We endured such a decline in December 1980 when double dip concerns were morphing into reality. … Let’s talk about what is normal and what is not. What is normal is that at this stage of the cycle, a year into a supposed recovery, the UofM sentiment index is sitting at 89.3. In recessions, the index averages out to be 73.8, and in expansions, it is usually already sitting at 90.9, on average. Today we sit at 66.5. Could it be that we are still in a recession?