Tag: sentiment

Commentary: With immigration losing its edge, Republicans find a new boogeyman: ‘Radical Islam’

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Imagine if a candidate for, say, the California Assembly appeared at a political event and delivered the following remarks:

“No to kosher meat. No to yarmulkes. No to celebrating Easter. No, no, no.”

He, or she, would be roundly — and rightly — criticized for their bigotry and raw prejudice.

Recently, at a candidates forum outside Dallas, Larry Brock expressed the following sentiments as part of a lengthy disquisition on the Muslim faith.

“We should ban the burqa, the hijab, the abaya, the niqab,” said the candidate for state representative, referring to the coverings worn by some Muslim women. “No to halal meat. No to celebrating Ramadan. No, no, no.”

Brock, whose comments were reported by the New York Times, is plainly a bigot. (He’s also a convicted felon, sentenced to two years in prison for invading the U.S. Capitol on Jan. 6. No to hand-slaughtered lamb. Yes to despoiling our seat of government.)

Brock is no outlier.

For many Texas Republicans running in the March 3 primary, Islamophobia has become a central portion of their election plank, as a longtime political lance — illegal immigration — has grown dull around its edges.

Aaron Reitz, a candidate for attorney general, aired an ad accusing politicians of importing “millions of Muslims into our country.”

“The result?” he says, with a tough-guy glower. “More terrorism, more crime. And they even want their own illegal cities in Texas to impose sharia law.” (More on that in a moment.)

One of his opponents, Republican Rep. Chip Roy — co-founder of the “Sharia-Free America Caucus” — has called for amending the Texas Constitution to protect the state’s tender soil from Islamification by “radical Marxists.”

In the fierce GOP race for U.S. Senate, incumbent John Cornyn — facing a potentially career-ending challenge from state Atty. Gen. Ken Paxton — has aired one TV spot accusing his fellow Republican of being “soft on radical Islam” and another describing radical Islam “as a bloodthirsty ideology.”

Paxton countered by calling Cornyn’s assertions a desperate attack “that can’t erase the fact that he helped radical Islamic Afghans invade Texas,” a reference to a visa program that allowed people who helped U.S. forces — in other words friends and allies — to come to America after being carefully screened.

There hasn’t been such a concentrated, sulfurous political assault on Muslims since the angst-ridden days following the Sept. 11 attacks.

In just the latest instance, Democrats are calling for the censure of Florida Republican Rep. Randy Fine after he wrote Sunday on X: “If they force us to choose, the choice between dogs and Muslims is not a difficult one.” He’s since doubled down by posting several images of dogs with the words “Don’t tread on me.”

In Texas, the venom starts at the top with Republican Gov. Greg Abbott, who’s waltzing toward reelection to an unprecedented fourth term.

In November, Abbott issued an executive order designating the Muslim Brotherhood and the Council on American-Islamic Relations — the latter a prominent civil rights group — as terrorist organizations.

Not to be out-demagogued, Bo French, a candidate for Texas Railroad Commission, called on President Trump to round up and deport every Muslim in America. (French, the former Tarrant County GOP chair, gained notoriety last year for posting an online poll asking, “Who is a bigger threat to America?” The choice: Jews or Muslims.)

Much of the Republican hysteria has focused on a proposed real estate development in a corn- and hayfield 40 miles east of Dallas.

The master-planned community of about 1,000 homes, known as EPIC City, was initiated by the East Plano Islamic Center to serve as a Muslim-centered community for the region’s growing number of worshipers. (Of course, anyone could choose to live there, regardless of their religious faith.)

Paxton said he would investigate the proposed development as a “potentially illegal ‘Sharia City.’ ” The U.S. Department of Housing and Urban Development last week jumped in with its own investigation — a move Abbott hailed — after the Justice Department quietly closed a probe into the project, saying developers agreed to abide by federal fair housing laws. That investigation came at the behest of Cornyn.

The rampant resurgence of anti-Muslim sentiment hardly seems coincidental.

For years, Republicans capitalized on the issues of illegal immigration and lax enforcement along the U.S. -Mexico border. With illegal crossings slowed to a trickle under Trump, “Republicans can’t run on the border issue the way [they] have in the past,” said Jim Henson, director of the Texas Politics Project at the University of Texas at Austin.

What’s more, cracking down on immigration no longer brings together Republicans the way it once did.

General support for Trump’s get-tough policies surpasses 80% among Texas Republicans, said Henson, who’s spent nearly two decades sampling public opinion in the state. But support falls dramatically, into roughly the high-40s to mid-50s, when it comes to specifics such as arresting people at church, or seizing them when they make required court appearances.

“Republicans need to find something else that taps into those cultural-identity issues” and unifies and animates the GOP base, said Henson.

In short, the fearmongers need a new scapegoat.

Muslims are about 2% of the adult population in Texas, according to the Pew Research Center’s Religious Landscape Study, completed in 2024. That works out to estimates ranging from 300,000 to 500,000 residents in a state of nearly 32 million residents.

Not a huge number.

But enough for heedless politicians hell-bent on getting themselves elected, even if it means tearing down a whole group of people in the process.

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Mark Z. Barabak

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February 18, 2026
Why Consumers Say They’re Planning to Cut Back on Holiday Spending This Year

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With the holiday season fast approaching, American companies are gearing up for an end-of-year spending splurge that will hopefully close out 2025 on a high note. After all, the period that covers Thanksgiving and Black Friday through to New Year’s usually brings with it a nearly trillion-dollar burst of consumer spending—which should be a welcome reprieve from a year that has seen many businesses struggling to navigate an ever-changing slate of tariffs.

But that fourth-quarter boost may prove underwhelming this year, at least if consumers’ predictions about their own spending habits are to be trusted. In a new survey of more than 1,000 American adults—conducted in late September by the market research firm HarrisX, and including questions developed by Inc.—40 percent of respondents said they anticipate their holiday gift budget will be smaller than it was last year. That’s compared to 21 percent who expect it to grow, and another 32 percent who expect it to stay more or less the same.

That hesitancy is more pronounced among women than men—with 44 percent of women anticipating less spending versus 35 percent of men—and grows steeper with age, rising from 27 percent in Gen Z all the way up to 51 percent in the Silent Generation, and increasing with each successive age cohort.

“Men seem to be having the high time of it, and women seem to be really concerned about the economy,” said Mark Penn, chairman and CEO of Stagwell, the parent company behind HarrisX. “It is really kind of a tale of two cities.”

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That may partially be a reflection of partisan differences between men and women, he added, as Democrats tend to be more pessimistic about the economy than Republicans, and women are leaning increasingly liberal.

The upshot for retailers prepping for the holiday gift season? Put the men’s items closer to the front of the stores, Penn suggests, and move the women’s clothing a bit further back.

The HarrisX polling found that those gendered dynamics extend beyond just Christmas gifts, too. When asked whether their personal financial situation had gotten better or worse over the last six months, 42 percent of men said things have gotten better (versus 30 percent saying worse), whereas among women, the split was 20 percent better and 38 percent worse.

Overall, though, there’s a level of ambivalence in the polling data. When asked about how their overall household spending has changed in the past six months, 29 percent of respondents said it has increased and 29 percent said it has decreased. The remaining 42 percent reported that their habits have pretty much stayed the same.

“This poll reflects neither euphoria nor dejection,” Penn said. “It’s actually sort of in the middle of things. Americans remain somewhat pessimistic about the economy, but they’ve been that way for a very long time.”

For those who said they’ve spent more, the leading reason why was a “desire to enjoy life/spend more in the present” (23 percent)—while more than half of those who reported decreasing their spending blamed it on inflation.

Yet in almost every specific bucket of spending that the poll asked respondents about—restaurants, clothes, consumer tech, entertainment and travel—more respondents said their household had cut back on spending over the last six months than the number who reported having increased it. Only for groceries did more respondents raise their budgets (37 percent) rather than shrink them (20 percent)–which makes sense given that the steepest cuts of all were to dining out, which 47 percent of respondents said they’ve reduced.

Indeed, 55 percent of survey respondents said they’ve swapped out some of their usual product purchases for cheaper alternatives over the last six months—and 31 percent anticipate reducing household spending over the next six months, versus 20 percent expecting to increase it.

Travel is the vertical for which the largest chunk of respondents, 48 percent, said they plan to cut spending going forward, while groceries was again the only category for which more people are planning to increase spending over the next six months (30 percent) than decrease it (22 percent).

Penn cautioned that respondents’ predictions about their future spending behavior may be a better indicator of how they feel about the current economy, rather than what they’ll actually do in the future.

“They don’t really know how they’re going to feel six months from now,” he says. “Six months in the American economy is a long time. In six months, we could be in a recession or we could be doing 3 percent growth and [have] lower interest rates.”

The HarrisX poll also asked respondents about a few different policy areas which Inc. has been covering in recent months. Among those were President Trump’s recent tax and domestic policy package (AKA the “Big Beautiful Bill”), which 39 percent of respondents said has made their household financially worse off, versus 24 percent saying better off; the cryptocurrency-regulating Genius Act, which 57 percent of respondents said they were unaware of; and employee stock ownership, with 65 percent of respondents saying they’d be interested in getting paid partially with equity in their employer.

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Brian Contreras

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October 21, 2025
Consumer sentiment jumps in early December for the first increase in five months

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This is a developing story. Stay tuned for updates here.

The numbers: The University of Michigan’s gauge of consumer sentiment rose to a preliminary December reading of 69.4 from a six-month low of 61.3 in the prior month. This is the highest level since August.

Economists polled by the Wall Street Journal had expected a December reading of 62.4.

Expectations of inflation cooled in early December, according to the report.

Americans think inflation will average a 3.1% rate over the next year, down from 4.5% in the prior month. That’s the lowest level since March 2021.

Expectations for inflation over the next five years fell to 2.8% from 3.2% in November, which was the highest reading in over a decade.

Key details: According to the report, a gauge of consumers’ views on current conditions jumped to 74 in December from 68.3 in the prior month, while a barometer of their expectations of the future rose to 66.4 from 56.8.

Big picture: A lot of factors were behind the increase in confidence, with the solid job market and declining gasoline prices mentioned most often by economists. Stock prices have also been strong. Despite the gains, sentiment is still well below prepandemic levels.

Market reaction: Stocks
DJIA

SPX
were higher in early trading on Friday, while the 10-year Treasury yield
BX:TMUBMUSD10Y
rose to 4.21% after the solid job report was released earlier in the morning.

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December 8, 2023
Consumer sentiment dips at end of August on more worries about the U.S. economy

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The numbers: A survey of consumer sentiment hung close a two-year high in August, but Americans expressed more worries about the future of the economy.

The final reading of the sentiment survey in August slipped to 69.5 from a preliminary 71.2, the University of Michigan said Friday. The index hit a 22-month high in July.

The consumer-sentiment survey reveals how consumers feel about their own finances as well as the broader economy.

Key details: A gauge that measures what consumers think about the current state of the economy registered 75.7 at the end of August vs. an initial 77.4

A measure that asks about expectations for the next six months dropped to 65.5 from an initial 67.3 in early August and 68.3 in July.

Americans think inflation will average 3.5% in the next year, a few ticks higher compared to several months ago.

The official rate of inflation is 3.2%, using the consumer price index, though other measures suggest prices are rising somewhat faster.

Big picture: Steady economic growth, ultra-low unemployment and slowing inflation have made Americans less worried about a recession.

Yet interest rates are high and likely to remain so through next year as the Federal Reserve aims return the inflation genie to the bottle. Higher borrowing costs are all but certain to depress the economy and perhaps increase unemployment

Looking ahead: “Consumers perceive that the rapid improvements in the economy from the past three months have moderated, particularly with inflation, and they are tentative about the outlook ahead,” said Joanne Hsu, director of the survey.

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.73%
and S&P 500
SPX,
+0.67%
rose in Friday trades.

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August 25, 2023
Consumers seeing substantial improvement in U.S. economy over past 3 months: University of Michigan survey

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The numbers: The University of Michigan’s gauge of consumer sentiment inched down to a preliminary August reading of 71.2 after hitting a 22-month high of 71.6 in the prior month.

Economists polled by the Wall Street Journal had expected sentiment to inch up to a 71.7 reading in August.

Another key part of the report is the U. of M. measure of inflation expectations.

According to the report, Americans’ expectations for overall inflation over the next year slipped to 3.3% in August from 3.4% in the prior month, while expectations for inflation over the next 5 years inched down to 2.9% from 3%.

Key details: According to the Michigan report, a gauge of U.S. consumers’ views on current conditions rose to to 77.4 in August from 76.6 in the prior month, while a barometer of their future expectations fell to 67.3 from 68.3.

Big picture: Sentiment has been boosted by waning recession fears and disinflation in grocery store prices.

What the University of Michigan said: “Consumer sentiment was essentially unchanged from July, with small offsetting increases and decreases within the index. In general, consumers perceived few material differences in the economic environment from last month, but they saw substantial improvements relative to just three months ago,” said Joanne Hsu, the director of University of Michigan consumer surveys.

Market reaction: Stocks
DJIA

SPX
were mixed in early trading Friday while the yield on the 10-year Treasury note
BX:TMUBMUSD10Y
rose to 4.12%, the highest level since the spike last week after Fitch Ratings downgraded the U.S. credit rating.

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August 11, 2023

August used to be the best month for the stock market. Then it became the worst.

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August the best month for average stock market performance? Or is it the worst?

The answer depends on the period of stock-market history you examine. Over the 90 years from the Dow Jones Industrial Average’s
DJIA,
+0.50%
inception in 1896 until 1986, August on average was far ahead of the other months — more than four times larger, as you can see from the table below. August outperformed the other months’ average by 1.4 percentage points. This difference is significant at the 95% confidence level that statisticians often use when determining if a pattern is genuine.

In the years since then, in contrast, August has been the worst month for the stock market, on average, lagging the other months’ average by 1.7 percentage points. Since 1986, in fact, August has been a worse month for the stock market than even September, whose reputation for stock market losses is widely known.

	August’s average DJIA return	Average return of all other months	August’s rank among all 12 months
1896 to 1986	+1.8%	+0.4%	1^st
After 1986	-0.8%	+0.9%	12^th

If the 36 years since 1986 were all that statisticians had to go on, they would conclude that August’s underperformance was significant at the 95% confidence level — just the opposite of the conclusion that emerges from the 90 years prior. But when analyzing the Dow’s entire history since 1896, August’s performance is no better or worse than average.

This August, in order to use history as a basis for investing, you’d first need to come up with a plausible explanation of what changed in the 1980s that caused August to swing from best to worst.

Though I’m not aware of any such explanation, it’s always possible that one exists. To search for it, I analyzed monthly values back to 1900 for the Economic Policy Uncertainty (EPU) index that was created by Scott Baker of Northwestern University, Nicholas Bloom of Stanford University, and Steven Davis of the University of Chicago. We know from Finance 101 that the stock market responds to changes in economic uncertainty, so we’d be onto a possible explanation of August’s seasonal tendencies if the EPU underwent some fundamental change in 1986.

But no such change shows up in the data. August’s average EPU level is no different than for any of the other months of the calendar, either before or after 1986.

Another possible explanation might trace to investor sentiment. To investigate that possibility, I analyzed stock market timers’ average recommended equity exposure levels, as measured by the Hulbert Stock Newsletter Sentiment Index (HSNSI). I was looking to see if, after 1986, the HSNSI was significantly different at the beginning of August than in other months, on average. The answer is “no.”

A plausible explanation might still exist for August’s change of fortune beginning in the mid-1980s, notwithstanding my inability to find one. But absent such an explanation, the most likely explanation is that it’s a random fluke.

It would hardly be a surprise if randomness is the culprit. Most of the patterns that capture Wall Street’s attention are in fact nothing more than statistical noise. The reason we nevertheless insist that significant patterns exist is because — as numerous psychological studies have shown — we’re hardwired to find patterns even in randomness.

That’s why your default reaction to all alleged patterns, not just those involving August, should be skepticism. The odds are overwhelming that they aren’t genuine. Only if those patterns can survive the scrutiny of a skeptical statistician should you even begin to be interested.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: Puzzled by the stock-market surge? Overshoots are the new normal, Bank of America strategist says

Plus: Here’s how long the stock market rally may last

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July 28, 2023

Consumer sentiment hits 22-month high on easing inflation

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The numbers: A survey of consumer sentiment survey reached a 22-month high of 71.6 in July, helped by a slowdown in inflation and a robust jobs market.

The final reading of the sentiment survey slipped from a preliminary 72.6 in early July, but it was up sharply from 64.4 in June, the University of Michigan said Friday.

The consumer-sentiment survey reveals how consumers feel about their own finances as well as the broader economy.

Also read: U.S. inflation eases again, PCE shows. Prices rise at slowest pace in almost two years

The index has risen in fits and starts from an all-time low of 50 last year. The index rose to as high as 101 shortly before the onset of the pandemic in 2020.

Key details: A gauge that measures what consumers think about the current state of the economy registered 76.6 at the end of July vs. an initial 77.5.

A measure that asks about expectations for the next six months slipped to 68.3 from an initial 69.4 in early July.

Both indexes are up sharply from June, however.

Americans think inflation will average 3.4% in the next year.

Big picture: Americans are less worried about a recession. Unemployment is low, wages are rising and inflation has eased.

Yet the economy is likely to face more turbulence ahead because of higher interest rates orchestrated by the Federal Reserve to bring inflation down even further.

Higher borrowing costs usually depress business investment and consumer spending, increase layoffs and slow the economy.

Looking ahead: “Overall, the sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets,” said Joanne Hsu, director of the survey. “However, sentiment for lower-income consumers fell.”

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.50%
and S&P 500
SPX,
+0.99%
rose in Friday trades.

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July 28, 2023
U.S. consumer sentiment soars in July to highest level since September 2021

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The numbers: The University of Michigan’s gauge of consumer sentiment rose to a preliminary July reading of 72.6 from a June reading of 64.4. It is the largest gain since December 2005. Sentiment is at its highest level since September 2021.

Economists polled by the Wall Street Journal had expected a June reading of 65.5.

However, Americans’ expectations for overall inflation over the next year rose to 3.4% in July from 3.3% in the prior month. Expectations for inflation over the next 5 years ticked up to 3.1% from 3% in June.

Key details: According to the UMich report, a gauge of consumers’ views on current conditions jumped to 77.5 in July from 69 in the prior month, while a barometer of their expectations rose to 69.4 from 61.5.

Big picture: Sentiment is improving as gasoline prices have held steady this summer. Low unemployment is also playing a role.

What are they saying? “The good news is that sentiment has roughly retraced half of its fall from pre-pandemic levels. For most Americans, a modest gain in income is expected. Still, durable goods buying conditions remain far off their recent levels. The rise in confidence seems restrained, and clouds concern about the forecasted economic downturn which continues to linger,” said Scott Murray, economist at Nationwide, in a note to clients.

Market reaction: Stocks
DJIA,
+0.33%

SPX,
+0.10%
opened higher on Friday while the yield on the 10-year Treasury note
TMUBMUSD10Y,
3.805%
rose to 3.81%.

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July 14, 2023
U.S. consumer sentiment rebounds slightly in late May, but worries persist

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The numbers: The final reading of a consumer-sentiment survey in May rebounded slightly to 59.2, but Americans remained worried about the future of the economy, especially against the backdrop of another fight in Washington over the debt ceiling.

The index, produced by the University of Michigan, registered a six-month low of 57.7 earlier in May. The index sank from 62 in April.

The consumer-sentiment survey reveals how consumers feel about their own finances as well as the broader economy.

Americans are worried about the possibility of recession and threat posed by a stalemate in talks between Democrats and Republicans on raising the U.S. debt limit. A similar impasse in 2011 also hurt consumer sentiment.

Sentiment is far below a recent peak of 88.3 in 2021 and a prepandemic high of 101. The index dropped to an all-time low of 50 last summer.

Key details: A gauge that measures what consumers think about the current state of the economy edged up to 64.9 from an initial 64.5 in May.

A measure that asks about expectations for the next six months also partly recovered to 55.4 from a preliminary 53.4 in May.

Both indexes are still quite low, however.

Inflation expectations haven’t changed much. Americans also think inflation will average just above 3% annually in the next five years.

Big picture: Higher borrowing costs have depressed purchases of houses and many other big-ticket items and put the brakes on U.S. growth. Yet even though the economy is more fragile now, there’s still no sign of a pending recession.

Market reaction: The Dow Jones Industrial Average
DJIA,
+1.00%
and S&P 500
SPX,
+1.30%
rose in Friday trades.

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May 26, 2023
Consumer sentiment tumbles to six-month low in May on renewed fears about U.S. economy

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The numbers: The University of Michigan’s gauge of consumer sentiment fell to a preliminary May reading of 57.7 from an April reading of 63.5. That is the lowest level since November last year.

Economists polled by the Wall Street Journal had expected a May reading of 63.

Americans view on near-term inflation moderated slightly in May. They now expect the inflation rate in the next year to average about 4.5%. Inflation expectations had surged to 4.6% in April from 3.6 in March.

Inflation expectations over the next five years rose to 3.2% from 3% in April. That’s the highest reading since 2011.

Key details: A gauge that measures what consumers think about their financial situation — and the current health of the economy — fell to 64.5 from 68.2 in April.

Another measure that asks about expectations for the next six months moved down to 53.4 in May from 60.5 in the prior month.

Big picture: Consumer spending is the engine of the economy. If households grow concerned about the outlook and pull back, it could push the economy into recession.

And Federal Reserve officials won’t be pleased to see expectations of inflation over the long-term increase. They view expectations as a key source of future inflation pressure.

What UMich said: “Consumers’ worries about the economy escalated in May alongside the proliferation of negative news about the economy, including the debt crisis standoff,” the press release said. In the most serious debt-ceiling standoff in 2011 consumer sentiment plummeted to recession levels but recovered quickly when the crisis was averted.

What are they saying? “While we don’t place too much weight on the relationship, if sustained, the latest plunge in consumer sentiment would be consistent with falling consumption in the second quarter. That would be alongside the probable hit to consumption from tightening credit conditions,” said Olivia Cross, assistant economist at Capital Economics.

Market reaction: Stocks
DJIA,
-0.18%

SPX,
-0.22%
were lower in volatile trading on Friday while the yield on the 10-year Treasury note
TMUBMUSD10Y,
3.437%
rose to 3.41%.

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May 12, 2023
U.S. consumer sentiment strengthens in final January reading

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The numbers: U.S. consumer sentiment improved in late January to 64.9, according to the University of Michigan’s gauge of consumer attitudes.

This added 5.2 index points from 59.7 in December and was up from the initial January reading of 64.6.

Economists surveyed by The Wall Street Journal had forecast an unchanged reading of 64.6.

Key details: A gauge of consumer’s views of current conditions rose to a final reading of 68.4 in January from 59.4 in the prior month.

The indicator of expectations for the next six months rose to 62.7 from 59.9 in December.

Americans viewed that inflation was moderating in January. They expected the inflation rate in the next year to average about 3.9%, down from 4.4% in December. This is the lowest level since April 2021.

In the longer run, inflation expectations held steady at 2.9%.

Big picture: Consumer confidence rose for the second straight month on lower energy prices and better financial market conditions. Assessments of personal finances are improving, supported by higher income and easing price pressures.

But sentiment remains well below the pre-pandemic level of 101 hit in February 2020 and the more recent high of 88.3 hit in April 2021.

Market reaction: Stocks
DJIA,
-0.20%

SPX,
-0.17%
opened higher on Friday. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.534%
rose to 3.54%.

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January 27, 2023
U.S. consumer sentiment improves in December as inflation worries ease

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The numbers: The University of Michigan’s gauge of consumer sentiment rose to a preliminary December reading of 59.1 from a November reading of 56.8.

Economists polled by the Wall Street Journal had expected a December reading of 56.5.

Inflation expectations over the next year fell to 4.6% from 4.9% last month. It is the lowest since September 2021. Five-year inflation expectations remained steady at 3%.

Key details: A gauge of consumer’s views of current conditions rose to 60.2 in December from 58.8 in November, while an indicator of expectations for the next six months rose to 58.4 from 55.6 last month.

Big picture: Economists think falling gasoline prices are behind the improvement in confidence.

The national average retail price for a gallon of gas is now $3.33, down $1.69 from June, according to White House data.

Still, high inflation has consumers remain in a relatively dour mood. The index is only marginally above the record low of 50 in June. By comparison, the consumer sentiment index was 101 in February of 2020.

Looking ahead: “High prices coupled with ongoing aggressive rate hikes will be a headwind for consumers and sentiment going forward,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics.

Market reaction: Stocks
DJIA,
-0.90%

SPX,
-0.73%
were higher on Friday on the back of hotter-than-expected wholesale inflation in November. The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.583%
rose to 3.54%.

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December 9, 2022

This little-known but spot-on economic indicator says recession and lower stock prices are all but certain

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An obscure and arcane economic indicator suggests that Federal Reserve Chairman Jerome Powell was wrong when he said at his Nov. 30 news conference that “There is a path to a soft, a softish landing” for the U.S. economy.

This indicator traces to the large divergence between consumers’ views about the economy in general and their immediate personal financial circumstances in particular. A recession has occurred each time over the past four decades in which this divergence even approached its current level.

To measure this divergence, this indicator focuses on the Conference Board’s Consumer Confidence Index (CCI) and the University of Michigan’s Consumer Sentiment Survey (UMI). While there is some overlap between what these two indices measure, there is a significant difference in emphasis, according to James Stack of InvesTech Research, from whom I first heard about this indicator. The CCI more heavily reflects consumers’ attitudes towards the overall economy, according to Stack, while the UMI is more heavily weighted towards their immediate personal circumstances.

Perhaps not surprisingly, the CCI currently is higher than the UMI. Even as American consumers’ attitudes towards their immediate financial situations continue to sour, due to everything from inflation to higher mortgage rates to a softening housing market, the overall economy has proven to be remarkably resilient. Yet more evidence of this resilience was the Dec. 2 jobs report, in which the Labor Department reported the creation of a much-higher-than-expected number of new jobs.

What is more surprising is the magnitude of the current divergence. According to the latest data releases from the Conference Board and the University of Michigan in late November, the CCI is 43.4 percentage points higher than the UMI. That’s close to a record; the latest reading stands at the 98^th percentile of all monthly readings of the past four decades.

Furthermore, as you can see from the chart above, a recession was in the economy’s not-too-distant future (shadowed bars) the past four times this difference rose to even 25 percentage points.

Consumer sentiment and the stock market

Stark as this chart’s correlations are, it’s difficult for a sample with just four observations to be statistically significant. To test this indicator’s potential, I next measured its ability to predict the S&P 500’s
SPX,
-1.96%
inflation-adjusted total return over the subsequent one- and five-year periods. The table below reflects data since 1979, which is when monthly data for both of these consumer indices first began to be reported.

When divergence between CCI and UMI was…	S&P 500’s average total real return over subsequent 12 months	S&P 500’s average total real return over subsequent 5 years (annualized)
In the highest 10% of monthly readings since 1979	-0.4%	-3.1%
In the lowest 10% of monthly readings since 1979	+14.3%	+14.8%

The differences shown in this table are statistically significant at the 95% confidence level that statisticians often use when determining if a pattern is genuine.

The bottom line? It’s not good news, for the economy in general or the U.S. stock market in particular, that consumers are so much more upbeat about the overall economy than they are about their immediate financial circumstances.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert Ratings tracks investment newsletters that pay a flat fee to be audited. He can be reached at mark@hulbertratings.com

More: The U.S. job market is strong, but layoffs are on the rise. Is this a good — or bad — time to ask for a raise?

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December 5, 2022