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Consumer Sentiment Drops Sharply In March

Closely-watched index at lowest point since 1992

March 28, 2008

But there are signs, if you know where to look. One of the biggest tip offs is the way consumers are thinking and behaving at any given moment, and right now they appear to be signing the blues.

The latest Reuters/University of Michigan Survey of Consumers finds consumer sentiment in "recessionary territory." The index for March fell to 69.5, the lowest since February 1992.

"It is now nearly unanimous among consumers that the economy has already entered a recession," the report said.

Consumer sentiment is important because it has been the consumer that has propped up the U.S. economy in the intervening 16 years. Consumers, often spending money they didn't have, have keep the Gross Domestic Product moving higher quarter after quarter. In the 1990s they cashed in on the stock market bubble. In the last few years they've ridden the housing boom.

Meanwhile, a report from the Commerce Department Friday also showed signs of economic weakness, with personal spending increasing just 0.1 percent in February. The reading was in line with expectations but was off from the 0.4 percent gain recorded in January.

Slightly better

"The spending numbers were a touch better than expected," said Joel Naroff, chief economist at Commerce Bancorp. "However, it is likely that we will see a major up tick in inflation in March and that could lead to a decline in consumption when adjusted for price changes."

Naroff says that's important because household spending this quarter is growing at a less than one percent pace for the first two months, even with what he called "the bizarre February price numbers." But the gain, he said, is probably enough that it is likely the U.S. economy will have positive spending for the first quarter and that could keep the country from posting a negative GDP growth number.

So, even though it looks like a recession, and feels like a recession, it may not – technically – be a recession. Yet.

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