October 3, 2024

Economix Blog: Polls vs. Markets

Who should be believed? The markets or the consumer-confidence polls?

FLOYD NORRIS

FLOYD NORRIS

Notions on high and low finance.

The Conference Board reported Tuesday that the preliminary January figure for consumer confidence in the United States had plunged to its lowest level in more than a year, with a decline in expectations leading the way.

The stock market has done very well in January.

The consumer confidence numbers are based on answers to only five questions, three of them calling for forecasts six months out. Those determine the expectations index.

All those forecasts — on business conditions, on employment and on personal income — got worse this month. People are more negative about the first two than at any time since October 2011, a time when talk of a double-dip recession was widespread and the stock market had done a summer swoon. But the income forecast is where confidence seems to have plunged the most.

As recently as last October, more Americans polled by the Conference Board expected their income to increase than decrease over the following six months. Now just 14 percent expect an increase and 23 percent expect a decline. That difference, of nine percentage points, is the largest since the spring of 2009, when the credit crisis was at its worst.

The difference is charted below.

Source: The Conference Board

What brought this on? One analysis is that it is the payroll tax increase that took effect at the start of the year. Others point to the so-called fiscal cliff fight.

But those looking for only domestic explanations may be missing something. Italy’s consumer confidence index for December, reported earlier this week, fell to the lowest level since it began to be calculated in 1996, noted Michael Shaoul of Marketfield Asset Management. And yet the Italian stock market has been rising rapidly since last summer, as fears of a euro zone collapse have abated.

The world economy does look better now than it did only a few months ago, at least to economists and stock traders. But a lot of people seem to think things are going in the opposite direction. At some point, that divergence is going to have to end.

Mr. Shaoul, discussing Italy, says “the odds are that it will be a surge in confidence rather than a collapse in the equity market which restores some balance.”

Here’s hoping he is right.

Article source: http://economix.blogs.nytimes.com/2013/01/29/polls-vs-markets/?partner=rss&emc=rss

Investors More Optimistic About German Economy

BERLIN — Germany defied expectations yet again Tuesday, with a survey showing a record improvement in the economic outlook, despite the persistent threat posed by Europe’s sovereign debt crisis.

The Center for European Economic Research in Mannheim, a private research institute known by its German acronym ZEW, reported that its survey of economic sentiment among investors jumped 32.2 points in January from the previous month, to its highest level since July. It was the largest monthly gain in records going back to 1991, but still left the index at minus 21.6 points — deep in negative territory and well below the index’s historical average of 24.5 points.

“Contrary to repeatedly expressed fears of a recession, the assessment of the financial market experts gives reason for cautious optimism that Germany will only experience a dent in economic activity,” the ZEW president, Wolfgang Franz, said in a statement. He also noted that the European Central Bank’s huge infusion of money into the banking sector last month could have contributed to the uptick.

The institute’s economic expectations index for the euro zone also gained, rising 21.6 points to stand at minus 32.5 points.

Negative readings indicate that a majority of respondents held a pessimistic outlook for how the German economy would develop in the next six months.

With the German economy thought to have contracted around 0.5 percent in the last three months of 2011, and austerity budgets in effect across Europe, “there is a widespread fear that, similar to 2008, the German economy could now also follow the downward trend of its euro zone peers, only with a lag,” Carsten Brzeski, an economist with ING in Brussels, wrote in a research note.

Yet the German job market is considerably more solid than it was in 2008, with unemployment steadily decreasing throughout 2011, to 6.8 percent in December.

Strong figures also came in from the German automobile industry, where domestic car sales rose 8.8 percent last year, despite an overall contraction in Europe, the European Automobile Manufacturers’ Association reported. Volkswagen, Bayerische Motoren Werke and Daimler all posted increased sales.

“Today’s release continues to point towards optimism that the German economy will be able to withstand the head winds from the euro zone crisis better than some other countries within the euro zone,” Lothar Hessler of HSBC Global Research wrote in a note to clients.

Analysts nevertheless expect the German economy to contract mildly in the first three months of 2012.

The German data came as Eurostat, the European Union’s statistical agency, said inflation in the 17-country euro zone slowed to 2.7 percent in December from 3.0 percent in November.

The decline in inflationary pressure provides the E.C.B., which targets an inflation rate of just under 2 percent, additional room to maneuver on interest rates. The bank last month cut its benchmark overnight rate to 1 percent from 1.25 percent, and analysts are predicting it could lower rates again in the near future.

The easing inflationary pressure was mirrored in Britain, where the Office for National Statistics said consumer prices rose 4.2 percent in December, down from a 4.8 percent increase in November. That might give the Bank of England, which also tries to hold inflation to around 2 percent, more freedom to adjust policy.

The Bank of England’s monetary policy committee this month left its benchmark interest rate at 0.5 percent, a record low, and maintained unchanged a £275 billion, or $422 billion, asset-purchasing program to provide liquidity to the financial system.

David Jolly contributed reporting from Paris.

Article source: http://feeds.nytimes.com/click.phdo?i=ec8eebd68041fb998823ef87eed47dce