“Consumer Concern…not Confidence” - August 25, 2009

Two important news items today. The first is the Conference Board’s consumer confidence index. The drop in this index in July was the biggest since the aftermath of Hurricane Katrina in 2005. Today’s data for August will reflect a continued nervous consumer.

The reasons are simple: despite wishes, there’s not a lot to be confident about. There’s a lot of talk about things getting better, but not many facts. Consumers are most worried about the jobs picture, just as they were last month. And since the marginal improvement in the unemployment rate in July was a technical fluke, moods won’t be much better.

By the way, the reason that these consumer confidence surveys are so important – and why the market pays so much attention to them – is that for over 40 years, they have been amazingly accurate about key economic numbers and conditions in the near future.

The second and more upbeat piece of news today is that Fed Chairman Ben Bernanke will be reappointed. This is not just good news; it’s great news. Continuity in leadership always helps when leadership has been outstanding – particularly so in financial markets. And Bernanke’s leadership has been nothing short of excellent. His bold actions prevented an outright collapse in the US financial system, as well as providing stability to financial markets worldwide.

Let’s see if the net effect of the Bernanke factor can outweigh nervous and grumpy consumers…I wish…but I don’t think so.