US Consumer Sentiment: Telling Tales

Consumer sentiment roared to an 85.1 level in July and we were told that the US economy was back on the railroad to recovery. Although, there were many people out there that saw that train as on track for the railroad to hell more than anything else. Now, figures that are released show the consumer feeling was much lower in August than had been expected. It looks like the sun has gone in, if it ever managed to peek out from behind the rain clouds of the Federal Reserve, QE and the rest of the scandals rocking the country with the Obama and the National Security Agency being shopped for surveillance by Edward Snowden.

Consumer sentiment in the US fell in August to 80, while July’s figure was the highest since the financial crisis rocked the world. Economists had been upbeat about where the US economy was going. At least, the mainstream media (which means that it wasn’t necessarily happening) had been pointing to signs of recovery. They had predicted a rise in August yet again to 85.5 and now that has sent the cat amongst the pigeons. No need to question and wonder in awe for too long at who might be the pigeons.

Unemployment

US Real Unemployment Rate?

It’s a telling tale when the consumer sentiment of any economy goes down. The government can tell tales as much as they like but it still points to the feeling of consumers in society. That feeling shows that the American people believe that the recovery is not going to happen, or at least growth will not continue at the rate that has been announced. Employment will not fall any time soon to that all-important figure that has been announced by Ben Bernanke as his target at under 6%, while it still hovers at around 7.4% today. Added to that, the fact that the U6 unemployed classification (people who are seeking full-time employment) is not counted in the figures as they are marginally employed (working for as little as just one hour a week perhaps) is a telling sign.

The figure that is released by the Bureau of Labor Statistics and that is reported by the media shows that the U3figure of unemployment (which excludes all people that are discouraged from seeking work four weeks prior to publication). The U3 figure stands at 7.4% today, while the U6 figure is at over 14%, double the figure that is being bandied about by the US government to show that the economy is picking up. So, telling tales doesn’t wash with consumers.

Unemployment in the US

Although, what does surprise me with some people is that on the one hand we hear from them that if some don’t actively participate in society, then the state owes them nothing. That would be statist and verging on the teetering edges of Welfare States and heaven-forbid Communism. But, at the same time those very same people tell us that the state is lying about the figures, which are much higher than really is being admitted. Although, they should be relatively happy since the state is not including the ‘shirkers’ that that have been discouraged from working. It’s a very complex thing to go along with the ideas espoused back in the 19th century by the British philosopher and demographer, Thomas Robert Malthus, but also go against those ideals when it concerns the figures revealed by the federal government because they don’t reflect the true picture:

“A man who is born into a world already possessed, if he cannot get subsistence from his parents on whom he has a just demand, and if the society does not want his labour, has no claim of right to the smallest portion of food, and, in fact, has no business to be where he is.” (Essay on the Principle of Population, 1798).

But, consistency is a rare thing, isn’t it? The beauty of political belief and ideology is that it can be seen from any angle that we wish, just as long as we keep hammering on the table and someone wants to listen up for a second. But, that never lasts eternally, does it?

Mortgage Rates

Problems for the Housing Sector?

It’s hardly surprising that consumer sentiment is falling in the US. Long-term interest rates have been on the up and have increased bya percentage point in just three months, announcing the end ofQuantitative Easing that is to come in the next month or so (or at least, the tapering of the $85 billion per month injection that has been going on).

Mortgage rates have increased as a direct result. That might tap into tentative returns to better times for the housing market in the following months and this is being reiterated by consumer sentiment. The 30-year-fixed-rate mortgage increased to 4.57%(from 4.56%) a few days ago. This time last year the mortgage rate stood at 3.86% and it now seems like that was ages ago and hard to remember. Now, for those that missed their chance of re-financing while the mortgage rates were at their lowest it seems that they will have to suffer the consequences of the increases in the interest rates. The rates that are now increasing coupled with the increase in the prices of homes, means that buying a new home will become more difficult, scuppering the possibility of a housing recovery in the US today.

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  Only 69.3% of homes were affordable to those on a median income of $64, 400.


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  In the first quarter, that percentage stood very much above this month’s figure (at 73.7%).


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  It is also, according to analyses, the first time that the figure has gone under the 70% mark for the past fiveyears.


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  The number of people that will be able to borrow will fall, but not only that.


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  There will also be a fall in the quantity of money that the borrower will be granted, working out to an average of$24, 000 less.


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  So, fewer people will be able to get mortgages, the house prices are still increasing and they will be able to borrow less.


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  Some are saying that it would be better to get hold of a mortgage now if you plan to buy and lock the rate in, because otherwise the rates will more than likely increase again in the months to come.

Housing starts and permits increased to a figure under that which had been previously expected in July and interest rates have already had an effect on the market today.

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  Analysts had predicted that there would be a 900, 000-unit rate, but it only increased to 896, 000 units, which means a 5.9%-increase.


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  At the same time, permits increased by 2.7% (to 943, 000; whereas expectations were targeting 945, 000).

Some are saying that the dip in consumer confidence in the US will have little effect on the growth on the economy that is planned over the next few months.

However, being upbeat is all well and good. The public do not feel the same way as the economists, or the politicians. Telling tales won’t do anything for the US economy and that’s a telling tale in itself.