September 28, 2005
Canaries Part II
To go along with my "Canaries in the Coal Mine" theme, yesterday September Consumer Confidence numbers fell its largest amount in 15 years. The culprits?? Hurricane Katrina and the rising costs of gasoline and heating fuel.
What I find extremely interesting are these comments from the Conference Board:
"Consumers’ overall assessment of ongoing conditions was considerably less favorable in September. Those claiming business conditions are “good” declined to 25.2 percent from 29.7 percent. Those claiming conditions are “bad” increased to 17.7 percent from 15.1 percent. The employment picture was also less upbeat. Consumers saying jobs are “hard to get” increased to 25.4 percent from 23.1 percent, while those claiming jobs are “plentiful” fell to 20.1 percent from 23.6 percent.
Consumers’ outlook for the next six months turned considerably pessimistic. Those anticipating business conditions to worsen increased to 19.8 percent from 10.0 percent. Those expecting business conditions to improve declined to 15.3 percent from 18.7 percent.
The outlook for the labor market also soured. Those expecting more jobs to become available in the coming months decreased to 14.0 percent from 16.4 percent. Those expecting fewer jobs increased to 25.0 percent in September, up from 17.3 percent in August. The proportion of consumers anticipating their incomes to decrease in the months ahead rose to 10.8 percent from 8.9 percent last month."
Also, yesterday Mohawk Industries (NYSE: MHK), maker of carpet and floors, announced that increased energy and raw material costs will cause it to miss earnings expectations. (AP report can be found here). In response to the increased costs, MHK will pass those costs onto the consumer with price increases faster than in the past, including between a 5 and 8 percent increase in the price of carpet on October 3rd. MHK also stated that these increases do not include impact of Hurricane Rita, which also has potential to create increased costs.
Finally, today the American Bankers Association announced that a record number of credit card payments that were past due shot up a record 4.81%; the highest increase since the ABA kept this information. (CNN.com report here and AP report here). The ABA's Chief Economist, Jim Chessen, said in an interview with the AP, "The rise in gas prices is really stretching budgets to the breaking point for some people," the association's chief economist." He continued, "Gas prices are taking huge chunks out of wallets, leaving some individuals with little left to meet their financial obligations." Chessen also stated that with the national savings rate at negative 0.6% in July, people have less of a cushion to absorb big jumps in energy prices.
I continue to believe the writing is appearing on the wall that a downturn in the economy is coming, as the consumer will no longer be able to or want to spend as freely as he/she has in the past ten years or so. And as I have already stated here and here, I believe that the stock market is preparing for a major correction. Nevertheless, Investors Business Daily is stating that a drop in consumer confidence may not mean a drop in spending, but I still believe that a downturn is looming.
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