The University of Michigan consumer sentiment index ticked up in November, to 69.3 from 67.7 in October, and the headlines were screaming at how it hit a five-month high. There was no mention of the fact that:
- It is still off the 76.0 nearby peak posted in June.
- At 69.3, it is not only well below average economic expansion levels of 99.0, but is still below what we generally see in recessions (74.0).
- The report itself was hardly universally positive — sentiment was down in the Northeast (64.5 from 65.2), the South (65.2 from 68.3) and was basically flat in the Midwest (72.8 from 72.4). All the strength was in the West — 77.1 from 63.3 — and was likely more due to the Giants’ World Series victory than anything to do with the economy.
- People aged 35-54 saw their confidence levels fall too (only the breadwinner age group) — to a four-month low of 70.2 from 70.5 (a record high unemployment rate of over 8% likely at play here for this age group).
What’s incredible was how little impact the weak U.S. dollar and the bounce in commodity prices have had on household inflation expectations. The median 5- 10-year inflation expectation measure remained at 2.8%, about where it has been for six months.... the consumer knows that the commodity boom and weakness in the U.S. dollar is likely not going to be a multi-year feature of the landscape any more than it was when oil was piercing $140/bbl in the summer of 2008 (recall that six months later, everyone was talking about deflation — who would-a thunk?).
So, when you do the simple math, Joe Sixpack sees inflation at 3% in the coming year (from 1% now) and then averaging 2% in the next four years. Depending on how food and fuels play out, this could well be consistent with a zero or even sub-zero environment as far as core consumer price trends are concerned.
This is why long Treasuries are likely to remain in a secular bull market for some time to come.
---Rosenberg today [My emphasis]