More from 1991 : Yesterday, we looked at the patterns in manufacturing activity over the past year and compared them to those seen in 1991. The chart of the ISM index then and now revealed remarkable similarities. The same is true of consumer sentiment. The January decline in sentiment reported this morning leaves a consumer picture much like that of 1991. Though that's not great news given the sluggish recovery in the 1991-93 period, it does provide hope that now, as then, the consumer will survive and double dip will be avoided.
Investors have been disappointed that consumer enthusiasm for the economic recovery took a turn for the worse last summer. Though the freefall seen through October has ended, sentiment readings are still well below their spring highs (13.6% below for the Michigan index, to be exact). This melancholy mood should not have been such a surprise. Despite the odds against this recovery being strong, consumers always have high hopes. As the jobless recovery unfolded and these hopes were dashed, sentiment flagged.
The key, however, is that these swings in consumer moods have not been matched by similar swings in spending. With unemployment holding steady and incomes growing at a modest pace, spending has continued to grow at a steady clip. There has been no significant acceleration as seen in a more typical recovery, but growth has been quite respectable and has kept the economy afloat.
Much the same trend was seen in the 1991 recovery as today's graph illustrates.
The consumer disappointment in 1991 following the early recovery surge was actually far worse than the 2002 dip. But despite this rather severe sentiment decline, consumer spending held up quite well in 1991-92. In fact, spending growth began to accelerate almost immediately after the late 1991 dip in sentiment, and reached a strong 4.6% year/year pace (in real consumer spending) by the end of 1992.
That might be too much to hope for in 2003, but the similarities between the two periods certainly argue for another year of respectable spending growth. So long as consumers can keep up a 2-3% rate of spending growth, the economy will continue to improve, albeit gradually and unevenly. - Greg Jones, Briefing.com |
