NEW YORK (Reuters) - Consumer sentiment deteriorated in early July to the lowest level since March 2009 on increasing pessimism over falling income and rising unemployment, a survey released on Friday showed.
Confidence in government economic policies also curdled, the Thomson Reuters/University of Michigan survey showed. U.S. lawmakers are wrangling over a budget deal that would allow the government to raise the debt ceiling -- needed so the United States can fund its obligations next month.
The preliminary reading for the consumer sentiment index dropped to 63.8 in July from 71.5 the month before, falling far short of expectations of an increase to 72.5, according to a Reuters poll of economists.
The survey's barometer of current economic conditions fell to 76.3, the lowest since November 2009, from 82.0. The gauge of consumer expectations was also at its lowest since March 2009, tumbling to 55.8 from 64.8.
"Whenever the Expectations Index has been this low in the past, the economy has been in recession," survey director Richard Curtin said in a statement.
The tanking of the venerable Michigan series at this point resembles nothing so much as its similar tanking in the abortive recovery of 1980-1981 that led into the double dip into the serious recession of 1981-1982.
I have pointed to the divergence between survey measures before, and have alluded to work citing the fading credibility of the unemployment statistics itself as well as the growing awareness of the U6 measure and the average duration of unemployment. The 1981-1982 downturn was caused by tight money to combat inflation. The current divergence and any subsequent downturn will occur in the context of an over-indebted economy in a liquidity trap.
At this point, any tightening of the fiscal reins, especially if not accompanied by increases in taxes on the top income tiers, will not only destroy “animal spirits” and plunge the economy into recession, but will challenge the confidence of most Americans in the very system under which they live, as is consistent with the operating hypothesis here, that the American social contract is broken and can only be fixed by quite revolutionary changes (violence not required).
There is a fetid whiff of depression in the air.