Consumer buy-in needed for recession to be “officially” over...
Energy prices were volatile yesterday (Tuesday). The Nymex liquids continue to consolidate; it seems the disappointing consumer confidence number was not enough to scare away the bulls. Meanwhile, natty rallied as the contract for October delivery went off the board.
With the product contracts expiring tomorrow, analysts at The Schork Reportare looking for large erratic movements in the wake of the DOE report — in the vicinity of a 0.70 MMbbl draw in crude stocks.
“Overall, consumers’ confidence in the state of the economy remains quite grim,” Lynn Franco, director of The Conference Board Consumer Research Center… and that is putting it mildly.
Yesterday, the research association’s index of consumer confidence plunged by 4.7 points to a seven-month low of 48.5. The National Bureau of Economic Research (NBER) officially called an end to the Great Recession in June 2009, but occupationally-challenged consumers apparently did not get the memo. Confidence this month is 0.8 points below then.
The decline in confidence is indeed surprising, not really, in light of the decline in gasoline prices. To wit, little progress has been made on weekly unemployment insurance claims.
As such, home foreclosures and mortgage delinquencies remain near all-time highs, i.e., a record number of us (1 in 10) are in arrears on the largest single investment of our lifetime.
And, that investment has greatly depreciated over the last five years. In turn, that has lowered the social-stigma for a lot of homeowners to just walk away from their obligation... after all, everyone knows it is Gordon Gekko’s fault.
More troublesome, consumer expectations fell, with the percentages of those expecting declines in business condition and future employment prospects rising. That is a problem given that the expectations index is usually a good barometer of future consumer spending... consumer spending accounts for more than two-thirds of the U.S. economy.
Bottom line, it was a troubling report, because without consumers buying into the theory that the recession is over, it’s not.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.