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.

By Anthony Mirhaydari Sep 13, 2013 2:50PM

Woman holding empty purse (© image100/Corbis)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 anthony@edgeletter.c​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​om​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​​ and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.

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Sep 13, 2013 3:26PM

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.

Sep 13, 2013 4:04PM

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.

Sep 13, 2013 3:24PM

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.

Sep 13, 2013 3:31PM
We are unhappy because of how companies are holding workers hostage, for fear of replacement. Also, stagnant wages while every quarter is a new record high for the Corporation. Invisible inflation that the Federal Reserve refuses to acknowledge. The extreme number of people who have completely dropped off of unemployment lists.
Lawyers like to argue. Almost half of Congress is lawyers. Start sending people who actually represent America. Send cooks, nurses, teachers... Most politicians start at city level and work their way up. That's not who we are. Millionaires and Billionaires cannot relate to people making 25- 50k a year.
Sep 13, 2013 3:58PM
Here's an interesting FACT that most people aren't aware of ... while we are scraping to get by we are also being told the "good news" that the CPI (consumer price index) shows very little inflation ... now the interesting part -- this "INDEX" of what the "average" consumer is paying EXCLUDES the items that we buy the most of, most often that have gone up the most in price!!!  here is an excerpt from another article:
"The government-issued consumer price index (CPI) for January showed that "core inflation" - which includes prices for all items - EXCEPT food and energy -  was up only 1% from the same month the year before. 
By excluding food and energy prices, as volatile as they may be, the CPI fails to convey the pain that rising prices are inflicting on American households. Indeed, some economists have claimed that the true rate of inflation is closer to 8% or 9%" .... because they purposely don't include anything negative!!! You can make a "statistic" show anything you want it to show if you pick and choose the factors !!
Sep 13, 2013 3:21PM

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!!!

Sep 13, 2013 3:27PM
consumers are mad cause everything is so damn expensive now.
Sep 13, 2013 4:18PM
Well Anthony, I still can't believe you are still writing articles. Prices are going up for EVERYTHING except most consumers paychecks. How much more are Americans going to take? Americans are not stupid, you can write all you want that all is good in the world, got news for you Anthony, it's not. 
Sep 13, 2013 4:29PM

Consumers are mad because everything is imported.

So, No Jobs, No Money, No Consumers.

Sep 13, 2013 4:17PM

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.

Sep 13, 2013 3:24PM
Everyone on tv seems so happy and so encouraged about the market.  However, we know that the reAson the mArket is looking good is because the earnings estimates are lowered every quarter. Also, the other good news is better by small amounts for short periods of time.  Also, we are slipping into a socialistic society that doesn't' work anywhere else.  So many are dependent on the government and so few are paying the taxes to support them.  We don't see the rose garden that you guys see. We think you are selling us a lot of fake stories.

Sep 13, 2013 3:52PM

"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.

Sep 13, 2013 4:22PM
What's so good out there?  Benghazi massacre still titled "What difference does it make?".  Gas prices rising. More folks at the Gov't dole then working, no jobs being created, kids being "dumbed down" in schools, retirees having to compete with recent college grads for minimum wage jobs, our borders wide open and thugs & drugs crawling in as I post this, prices rising for everything we need to survive but our hours being cut thanks to obamacare.  I could go on, but I'm depressed enough already. 
Sep 13, 2013 4:11PM
The middle class grows tired of supporting the 47% LEECH class.  We want taxes LOWERED, GOVERNMENT SPENDING slashed, and the freeloaders CUT OFF...

Until we get rid of the socialist democRATs there cannot be any economic improvement.

Quite simply, oil prices still hold us hostage.  There is no reason oil found locally should cost the same as oil found in the Mid-East.  For a change the government should do two things.  Break the monopoly pricing controlled by the oil producers either here or abroad or both and make it a free market, thereby pitting one oil producer against the other in a free trade environment and two, remove the tax on any fuel be it gas, coal, oil,  wood or dilithiam crystals.  People should not be taxed for trying to go to work or heat their homes.  We pay to license our vehicles, we pay road use taxes and tolls.  A fuel tax is downright criminal in my humble opinion and is a cash cow to the federal (and State) government(s).  Imagine 11-18 cents a gallon on EVERY gallon sold in the U.S. in federal taxes, 30-45 cents (or more) on state taxes.  Billions of dollars every friggin' month.  As a further treat, perhaps figure out a way to subsidize gasoline prices so the average American has more money to buy other items.  $120.00 to fill a gas tank once or twice a week is, pardon the pun, highway robbery.
Sep 13, 2013 4:01PM
Pretty simple... It's called Obama! Why is this idiot killing every area of advanced techno that made us the power we are. NASA created more techno in 30 years than the automobile industry. Microwave, LED lights, computer programs etc. The techno of the military and The nuclear fields also. All of this made it into our homes. This idiot has killed all of these for his food stamp/welfare/cell phone vote buying. And now Obamacare. (O)ne (B)ig (A)ss (M)istake (America!!!!
Sep 13, 2013 3:31PM
I must be missing something.  didn't know everything was so wonderful on wall street and in big Govt programs.  Want to bet there won't be a big correction in 4-8 weeks?
Sep 13, 2013 4:30PM
All the tricks to hide inflation are becoming evident. The gallon ice cream isn't a gallon anymore but the price is the same. The only place inflation is not showing is in wages and this is due to the dishonest and unethical actions of our government. When you can't get paid enough to live a decent existence, it is time to revolt.The crookedness of our society will come home to roost and If your are not part of the solution then you are the problem.
Sep 13, 2013 5:12PM

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.

Sep 13, 2013 4:41PM
The middle class is shrinking because Business can keep wages and benefits down by convincing our worthless   sellout politicians that we need massive immigration and free trade deals to outsource work to low wage countries.
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