Why are consumers so upset?
A drop in consumer sentiment illustrates the divide between recent gains for the corporate sector and the stalling of the housing and job markets.
Wall Street was taken aback Friday morning by the unexpected decline in September's consumer sentiment report, which fell from 82.1 in August to just 76.8, well below the 82.0 consensus estimate. That's the lowest reading in five months and is the biggest miss on record for the survey as folks grow more concerned about the economic outlook. Retail sales were also soft.
This is all the more jarring given the improvement we've seen in other data, particular survey responses from purchasing managers at both services and manufacturing companies, which suggests the economy is enjoying a tailwind not seen since early 2011.
Clearly, there's a big disconnect between households and the corporate sector. But why are consumers so dour?
As I've written about recently, there have been two big factors that have bothered consumers while largely leaving businesses unaffected. One is the slowdown in mortgage originations (both refinancings as well as new purchases) as long-term interest rates have soared. The 10-year Treasury yield has climbed from 1.7% in May to nearly 3% now, cooling the demand for new loans.
The other has been the slowdown in the pace of new job creation, with monthly payroll gains averaging just 160,000 over the last six months. Given that we're still 1.9 million jobs away from the pre-recession peak (and even more if accounting for the growth in the population since 2007) it'll take far too long at this rate to close the gap.
(There are other factors at work too, such as the problems in Syria and the recent increase in oil prices.)
But on the other hand, there are positive signs. Yesterday, I discussed how factories are spooling up and new orders are flowing in. And how that's pushing up long forgotten stocks in the materials and energy sectors, including Rare Element Resources (REE), which I added to my Edge Letter Sample Portfolio.
There is also evidence that both housing and jobs should turn around -- assuming of course that the budget battle in Washington, the Syrian problem, and the Federal Reserve's plans to trim its cheap money stimulus don't derail the improvement underway.
Consider that businesses have dramatically cut the pace of firings, while more and more workers are voluntarily quitting. This is a sign managers are worried about finding new workers amid an increase in orders while workers are feeling more confident about leaving and finding better opportunities elsewhere. Both suggest an increase in hiring measures, and wages for that matter, is just around the corner.
You can see his in the way that small businesses reporting to the NFIB Employment Expectations index has dramatically increased their hiring plans to levels not seen since 2006. The chart above shows just how dramatic the turnaround is, and suggests that monthly payroll growth should move back over the 200,000 level soon.
In housing, Bank of America Merrill Lynch analysts believe that upward price momentum will trump the rise in mortgage rates. That's because buyers factor in expected price increases, as well as the cost of financing, into the calculations of overall housing costs.
Income is also a big factor long-term, and if we see a turnaround in hiring, that will support housing despite higher rates. (Other factors Merrill Lynch considers in their home price models include inventory, which has been tight lately, and the unemployment rate, which continues to fall.)
And looking at retail sales, the folks at Capital Economics note that while the most recent data was disappointing, the overall trend continues to improve. The three-month annualized growth rate increased to 3.1% in August from 2.6% in July and is on a clear upward trajectory as the mid-year slowdown related to those start-of-the-year tax hikes begin to fade.
The stock market doesn't seem concerned. Just look at the way real estate stocks have been bid this week, with the Homebuilders SPDR (XHB) exiting a five-month downtrend pattern while mortgage REITs like Anworth Asset Mortgage Corp. (ANH) have also found buyers, with ANH peeking above its upper Bollinger Band today for the first time since April.
So while I completely understand the concerns of consumers, the evidence suggests -- assuming we clear hurdles like the debt ceiling later this year -- that things could soon get better for the average family as far as jobs and housing is concerned. Inflation, on the other hand, I'm still worried about.
Disclosure: Anthony has recommended REE to his clients.
Check out Anthony's new investment newsletter, the Edge, and his money management service, Mirhaydari Capital Management. A two-week free trial has been extended to MSN Money readers. Click the link above to sign up. Mirhaydari can be contacted at firstname.lastname@example.org and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
MSN Money on Twitter and Facebook
Consumers aren't stupid, Anthony. They see a big disconnect between what they are being told and reality. Wall street tells us we're awash in oil, yet gasoline prices are $1 a gallon higher than 2007 and every time some third world dictator farts the Harvard boys pee their pants and bid the price up further.
Have you been grocery shopping lately, Anthony? Bread up 49%, meat up 30%, fruits and veggies up similar amounts, all in the past two years. Cotton spiked in 2011 and is since back down to more normal levels, yet clothing prices remain high where they were when cotton was 3 times the price it is now.
Meanwhile, wages are stagnant and despite promises, businesses are not yet hiring. Doesn't take a rocket scientist to figure this one out.
We'll lets see now. The real unemployment rate is 10.7%, 7.1% by government plus 3.6% work force shrinkage. Everything that most people buy is going up and up including automobiles, entertainment, food, gas and other stuff. We have to pay $80 per month to which TV reruns, $5-6 for fast food that's slower then hades and tastes like it was prepared in a microwave, $80 month for a mobile phone and 10-12% taxes on everything in addition to income taxes for the US government that keeps getting us in wars over things we really don't care about like fighting every country in the Middle East. Couple that with wages that are going down, home values that will never really go up and Medical costs that are skyrocketing. We save to retire and then the US government is trying to figure out how to cut our benefits that will not be there if we ever do retire. Oh, we get no interest on our saving while banks and credit cards charge us 5-20% plus fees. We're all getting older and grumpier and would like to tell someone to take the whole thing and shove it. Screw the Fed, McCain, Obama, Putin, Washington and Wall Street.
We consumers are so upset because we are sick of the bogus garbage numbers spewing from OUR government stating how good everything is.
Most people just don't see a turnaround, and many are starting to question the motives of our elected "leaders" in Washington .
Proof is in the pudding, and Hunt's just raised the price again.
The Middle Class is shrinking because we are scared to death we may loose our job. Who's at fault...all of us for letting the Government, the large Corporations and the selfish people out their.
The Middle Class is crying out for help but the only thing that will save us is a second American Revolution!!!
Consumers are mad because everything is imported.
So, No Jobs, No Money, No Consumers.
The country has been in a depression since 08. Only steady borrowing and printing have put off the pain. The jobs have gone with NAFTA and everyone see's inflation every time they go shopping.
Wages don't match any of our costs. Homes and transportation and energy and about everything else.
The figures put out by the government are a lie and anyone awake can see it.
To bad we have no statesmen or leadership in Washington. 20 trillion in debt by 2016? How much debt before the country fails?
The media keeps saying how great everything is, they suck! Maybe another war well distract folks for a while.
"Wall Street was taken aback Friday morning by the unexpected decline in September's consumer sentiment "
The were not. The market is up thanks again to QE pixy dust. That is what is wrong antman. The idiotic lie about recovery.
Things are not good for the common man. Do you realize that a person making $10 per hour has to work over half an hour just to afford a crappy "value meal" from Mickey D's? They have to work almost 1 full day just to fill the gas tank of their cars. Do you really think these people are out shopping? And don't start blabbing about getting an education, BECAUSE a lot of these workers do have an education, and cannot find a job equal to the one they lost in the depression, which, btw, is still going on. The governent can skew the numbers all they want, BUT they can't skew the reality of life in America.
This country is going down the drain, and our government continues to give our tax money to every country on the planet, while turning a blind eye to America. I'm sure sick of it.
Copyright © 2014 Microsoft. All rights reserved.
As the market wades through what many people hope is a sixth bull year, some have grown nervous about how long the run can go.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.