Friday, October 14, 2011

Peak Consumer Schizophrenia

Typically when people feel positive about the economy in the near term, they go out and spend. On the other hand, if people's expectations for the economy are somewhat pessimistic, they normally cut back on spending. Makes sense.


Monthly economic reports show us that consumers confidence has been dropping rapidly and today's report shows that it is now at its lowest level since 1981 - over 3 decades ago. One could confidently assume then that people are cutting way back on spending. Not so fast. The opposite is happening. Retail sales are actually booming compared to last year.

Looking at the chart below, the high correlation between retail sales and consumer confidence is evident all the way until 2009. And then all of a sudden begins a sustained jaw dropping disconnect. We are spending as if we expect very good times ahead but our consensus expectations for the economy are at 31 year lows.

Can you say "peak consumer schizophrenia"?

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