I've never paid much attention to consumer sentiment numbers. Whether the numbers are coming from the Conference Board or the University of Michigan, the way consumers feel just doesn't carry much weight for me. But yesterday's plummet in consumer confidence as evidenced from the Conference Board release caught my attention. The number was projected to drop to 55.0 from 56.5 on the index, but instead plunged to 46.
My initial thought for why there would be such a significant drop in confidence was that consumer's faith in a rebound of the job market continued to erode. In fact, that fear was borne out in the report as the share of consumers who said jobs are plentiful fell to 3.6 percent from 4.4 percent, according to the Conference Board. The proportion of people who said jobs are hard to get increased to 47.7 percent from 46.5 percent.
Today we see that initial jobless claims jumped 22,000 to 496,000 in the week ended February 20th. The four-week moving average of claims increased to 473,750 last week, the highest level since late November. Therefore, it is safe to conclude that the morass consumers find themselves in stems mostly from the tenuous nature of the U.S. job market.
Fed Chairman Ben Bernanke has now been firmly placed on ice for at least the next three to four quarters. The inability of this nascent recovery to improve the labor market along with the troubles in Euro-land, which has caused the U.S. dollar to surge on a trade weighted basis, virtually guarantees that the Federal Reserve will not raise the over-night lending rate between banks in 2010.
The last thing Mr. Bernanke wants to do is boost the value of the dollar, which has increased from 74 in December of 2009 to over 81 today on the Dollar Index. His fear is that the surging greenback will attenuate the demand for U.S. exports and stall the recovery in manufacturing that has been evidence by six straight months in the ISM report.
Renewed weakness in the real estate sector and in the labor market along with a slowdown in global output should not only keep the Fed on hold in 2010 but also cause domestic GDP to stumble in Q3 and Q4. My prediction of a double dip recession in late 2010 early 2011 unfortunately looks on target and is underwritten by the troubles in Europe, Japan and the efforts on the part of the PBOC to curb bank lending.