Economists Surprised by Drop in Consumer Sentiment 11/12/2013 By: Tory Barringer DSNEWS

 

The University of Michigan’s preliminary Index of Consumer Sentiment report shows a drop in confidence for November—and Capital Economics’ Amna Asaf is at a loss to explain why.

The index, released jointly by the University of Michigan and Thomson Reuters, fell from 73.2 to a two-year low of 72.0 in the first November report. With the economy in a relatively healthier position compared to last month, Asaf—an economist for the macroeconomics research firm—says the decline is something of a surprise.

“The further drop in the University of Michigan’s index of consumer confidence … is hard to explain given that the

 

government reopened, the labor market is strengthening, equity markets have rallied and gasoline prices have fallen further,” she said.

The decline in November’s headline index came from a drop in the Current Conditions Index, which fell to a 10-month low of 87.2 from 89.9 at the end of October. That index typically reflects changes in job market conditions, which—given October’s strong increase in payrolls—makes the preliminary November figures all the more puzzling, Asaf said.

Meanwhile, the Index of Consumer Expectations, which reflects changes in equity and gas prices, registered 62.3, down slightly from 62.5. Gasoline prices are hovering at year-to-date lows, and mortgage rates have also leveled out at a five-month low of around 4.30 percent, Asaf noted.

While the early-release numbers are difficult to align with what’s going on in the country, Capital Economics expects things will pick up in later releases—perhaps even in the final numbers for November.

“Overall, a disappointing decline, but it is hard to square with the improvement in the normal key drivers of confidence or the strength of actual consumption,” Asaf said. “We wouldn’t be surprised to see a rebound in confidence before the end of the year.”

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