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Drooping Consumer Sentiment Belies Fundamentals

Despite a series of upbeat data on the economy, consumer sentiment was markedly down in new data out late this week. Our senior research fellow, Bob Hughes, says that is likely a psychological reaction to the recent market volatility, and is probably a fleeting phenomenon.

The University of Michigan Consumer Sentiment Index, released this morning, and the Bloomberg Consumer Comfort Index, released Thursday, “both have been trending lower for a few months, with the Michigan survey dropping substantially in the latest month which is  likely a result of stock market volatility,” Hughes said.

“Consumer psyche is not doing all that well, however, other indicators suggest consumers should be feeling a little bit better,” Hughes said.

For instance, the number of job openings is at an all-time high, indicating more opportunity for job seekers, according to data from the Bureau of Labor Statistics released Wednesday, Hughes noted.

A survey from the National Federation of Independent Businesses, out Tuesday, showed 29 percent of their members have positions they’re unable to fill now, he said. That’s a pretty strong number, up from a low of 8 percent in 2009, Hughes said.

And initial claims for unemployment were 275,000 for the week, another low number, Hughes said. Anything below 300,000 is considered good, and it’s been under that threshold since March, he said.

Add to that low gas prices – a gallon of regular unleaded was $2.53 on Friday, according to the Energy Information Administration, with continued downward movement expected – and consumer sentiment is likely poised for a rebound, particularly if volatility in global stock markets recedes, Hughes said.

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