Insights into the Drop in Consumer Confidence

U.S. consumers are growing more pessimistic about the economy.

Indeed, the latest drop in the Consumer Confidence Index has reached a seven-month low.

Here’s an excerpt from a Sept. 29 article in TheHill:

The Consumer Confidence Index, a key indicator that offers a glimpse into purchasing attitudes among U.S. consumers, recorded another decline in September, continuing the streak of decreases seen in both August and July, according to new Conference Board data.

Falling to 109.3 from the 115.2 recorded in August, the new number indicates persistent pessimism among U.S. consumers, which in turn indicates lingering doubts about their individual finances. …

This most recent decline is now a seven-month low, according to calculations from Reuters, with these most recent readings being the lowest recorded since February.

American consumers also feel pessimistic surrounding the current business conditions in the U.S. Measured by the Present Situation Index, 19.3 percent of consumers described the business climate to be “good,” a drop from the 20.2 percent seen in August.

Is this a sign of a deepening deflationary psychology?

This is from Robert Prechter’s book, Conquer the Crash:

The psychological aspect of deflation and depression cannot be overstated. When the trend of social mood changes from optimism to pessimism, creditors, debtors, investors, producers and consumersall change their primary orientation from expansion to conservation.

When the Sept. 3 Elliott Wave Financial Forecast published, the latest consumer confidence data was for August. Here’s a chart and commentary from that issue of the Elliott Wave Financial Forecast:

In June 2000, The Elliott Wave Financial Forecast pointed out that the University of Michigan Consumer Sentiment Index … does a pretty good job of sussing out the prevailing direction of social mood.

The main trends in consumer confidence have always been tuned to stock prices.

…. The arrows on the chart highlighting the low in 1980 and the low in August 1982 … show that consumer sentiment led the way out of an economic quagmire at the beginning of Cycle wave V. Now … they are even more dramatically leading the way into a new one.