Perception can often become reality. On Friday, a batch of data showed that although the U.S. economy may be mediocre, American consumer sentiment is worse.
"The sentiment is probably worse than the actual data," said Peter Dunay, the chief investment strategist at Meridian Partners. Yet although much of the information was dim, there were also a few glimmers of hope peaking through the clouds.
The clouds, however, were dark. The Reuters/University of Michigan Surveys of Consumers index of consumer sentiment dropped to 69.6, drastically below analysts' median forecast for a preliminary reading of 76.3 -- from 78.4 at the end of January. The February reading was the lowest since February 1992.
"The sentiment index has only been this low during the recessions of the mid 1970s, the early 1980s and the early 1990s," said survey director Richard Curtin.
Consumer spending accounts for roughly two-thirds of American economic activity, so shoppers who fear for their livelihood can bring about a recession by curtailing their purchases.
Meanwhile, the New York Federal Reserve Bank's manufacturing survey tumbled into negative territory in February -- reaching its lowest level in almost four years. Even though the survey of manufacturing executives only covers New York State, the data was so weak that it caused the entire stock market to take a turn for the worse.
Global Insight economist Brian Bethune had a pessimistic view of the U.S. economy. He said real consumer spending is expected to "barely creep forward" in the first quarter of 2008. With consumer sentiment and the Empire survey showing that the risk to the economy are growing rapidly, "Bernanke's 'sluggish growth' outlook for early 2008 clearly is not in the cards, and the Fed needs to lower rates again as soon as possible," said Bethune. He was referring to testimony to Congress on Thursday in which Fed Chairman Ben Bernanke said the United States seemed able to skirt an outright recession. (See "Outlook Hazy")
On the other hand, the Federal Reserve Board released data showing that overall U.S. industrial output, which includes production at factories, mines, and utilities, increased 0.1% in January for a second consecutive month. The data was in line with economists’ forecasts. Output in the manufacturing sector was unchanged in January after a 0.2% gain in December. The output of mines decreased 1.8% but was offset by a 2.2% climb in the utilities.
There was other good news this week. The Commerce Department released trade balance numbers for December on Thursday showing that exports rose by 1.5%, indicating that the global picture is still strong. The data also showed that imports declined 1.1%, suggesting Americans are curtailing their purchases as they brace for tough times.
The Labor Department reported that the cost of goods imported into the country jumped 1.7% in January, driven by soaring energy costs. This double whammy of rising inflation and slowing growth or “stagflation” sent the U.S. stock market reeling.
The survey consists of telephone interviews of 500 respondents, who are asked about their attitudes toward, and expectations of, the U.S. economy.
For investors, the question is whether a world without American consumers can have a vibrant economy. If the export data and strong commodity demand is any indication, then so far it looks like it can. But the markets did not bear that out. The yield on the 10-year Treasury bond fell to 3.77% from 3.82% late on Thursday as stock prices fell. Taken together, the movements indicate investors were deserting the stock market in favor of bonds, a sign that they are worried about slow economic growth. (See "Bad News Before Break")
Some of the stock market's weakness could be attributed to February’s Empire State Manufacturing index. The index fell nearly 21 points to a negative 11.72 from a positive 9.03 in January. That was the lowest level for the index since it hit negative 16.47 in April 2003, though there was also a one-month negative reading in May 2005. A figure above zero indicates the state's manufacturing sector is growing.
Wall Street economists expected the New York Federal Reserve Bank's Empire State index to fall to 5.75 in February, down from 9.03 the previous month, according to Thomson/IFR.
New orders for February fell for the fourth straight month, down more than 11 points to negative 11.88. Shipments also had a sharp decline of 21 points, to negative 4.86.
The New York Fed's survey is the first of several regional reports that the markets watch for early indications of economic activity in February. The Philadelphia Fed is scheduled to release its index Feb. 21, while a Chicago purchasing manager's index is scheduled for Feb. 29.
Meanwhile, the Labor Department reported that the cost of goods imported into the country jumped 1.7% in January, driven by soaring energy costs. Combined with the signs of a weakening economy, that led to fears of stagflation in the financial markets.
Thomson Financial and Reuters contributed to this article.
"The sentiment is probably worse than the actual data," said Peter Dunay, the chief investment strategist at Meridian Partners. Yet although much of the information was dim, there were also a few glimmers of hope peaking through the clouds.
The clouds, however, were dark. The Reuters/University of Michigan Surveys of Consumers index of consumer sentiment dropped to 69.6, drastically below analysts' median forecast for a preliminary reading of 76.3 -- from 78.4 at the end of January. The February reading was the lowest since February 1992.
"The sentiment index has only been this low during the recessions of the mid 1970s, the early 1980s and the early 1990s," said survey director Richard Curtin.
Consumer spending accounts for roughly two-thirds of American economic activity, so shoppers who fear for their livelihood can bring about a recession by curtailing their purchases.
Meanwhile, the New York Federal Reserve Bank's manufacturing survey tumbled into negative territory in February -- reaching its lowest level in almost four years. Even though the survey of manufacturing executives only covers New York State, the data was so weak that it caused the entire stock market to take a turn for the worse.
Global Insight economist Brian Bethune had a pessimistic view of the U.S. economy. He said real consumer spending is expected to "barely creep forward" in the first quarter of 2008. With consumer sentiment and the Empire survey showing that the risk to the economy are growing rapidly, "Bernanke's 'sluggish growth' outlook for early 2008 clearly is not in the cards, and the Fed needs to lower rates again as soon as possible," said Bethune. He was referring to testimony to Congress on Thursday in which Fed Chairman Ben Bernanke said the United States seemed able to skirt an outright recession. (See "Outlook Hazy")
On the other hand, the Federal Reserve Board released data showing that overall U.S. industrial output, which includes production at factories, mines, and utilities, increased 0.1% in January for a second consecutive month. The data was in line with economists’ forecasts. Output in the manufacturing sector was unchanged in January after a 0.2% gain in December. The output of mines decreased 1.8% but was offset by a 2.2% climb in the utilities.
There was other good news this week. The Commerce Department released trade balance numbers for December on Thursday showing that exports rose by 1.5%, indicating that the global picture is still strong. The data also showed that imports declined 1.1%, suggesting Americans are curtailing their purchases as they brace for tough times.
The Labor Department reported that the cost of goods imported into the country jumped 1.7% in January, driven by soaring energy costs. This double whammy of rising inflation and slowing growth or “stagflation” sent the U.S. stock market reeling.
The survey consists of telephone interviews of 500 respondents, who are asked about their attitudes toward, and expectations of, the U.S. economy.
For investors, the question is whether a world without American consumers can have a vibrant economy. If the export data and strong commodity demand is any indication, then so far it looks like it can. But the markets did not bear that out. The yield on the 10-year Treasury bond fell to 3.77% from 3.82% late on Thursday as stock prices fell. Taken together, the movements indicate investors were deserting the stock market in favor of bonds, a sign that they are worried about slow economic growth. (See "Bad News Before Break")
Some of the stock market's weakness could be attributed to February’s Empire State Manufacturing index. The index fell nearly 21 points to a negative 11.72 from a positive 9.03 in January. That was the lowest level for the index since it hit negative 16.47 in April 2003, though there was also a one-month negative reading in May 2005. A figure above zero indicates the state's manufacturing sector is growing.
Wall Street economists expected the New York Federal Reserve Bank's Empire State index to fall to 5.75 in February, down from 9.03 the previous month, according to Thomson/IFR.
New orders for February fell for the fourth straight month, down more than 11 points to negative 11.88. Shipments also had a sharp decline of 21 points, to negative 4.86.
The New York Fed's survey is the first of several regional reports that the markets watch for early indications of economic activity in February. The Philadelphia Fed is scheduled to release its index Feb. 21, while a Chicago purchasing manager's index is scheduled for Feb. 29.
Meanwhile, the Labor Department reported that the cost of goods imported into the country jumped 1.7% in January, driven by soaring energy costs. Combined with the signs of a weakening economy, that led to fears of stagflation in the financial markets.
Thomson Financial and Reuters contributed to this article.
![[Valid Atom 1.0]](valid-atom.png "Validate my Atom 1.0 feed")
