Consumer sentiment, as measured by the University of Michigan’s Consumer Sentiment Index, rose a rather surprising 2.9 points to its highest level since October 2007. On a side note, I am personally intrigued by how the UM survey, a non-political survey, shows high confidence, while political polls consistently show that people don’t think things are going so well. It’s no wonder, really, when you consider all of the conflicting data coming at people. For instance, the markets have come down around 6% since the end of April, which can lower people’s confidence. On the other hand, gas prices have also come down markedly, which can raise people’s confidence. What is a person to think?
What we think is that US economy is recovering better than it had been the past couple of years, but we are still vulnerable to outside forces and those outside forces are backing up a bit. The Europeans have a very large problem on their hands. The UK and several other of the larger countries are already in recession, and Greece is likely out of the Euro. How they handle the Greek exit will be paramount to our fortunes. While we don’t have a lot of confidence in the European ability to handle it well, a crack in the German armor appeared recently, which is a good thing. The German Bundesbank (central bank) admitted in a Wednesday report that Greece’s exit would be difficult, but possible “with careful crisis management.” Furthermore, Chancellor Merkel has opened the door to more accommodative fiscal and monetary policy within the EU. That is, she has slightly loosened her rigid stand on austerity.
Next week we will be watching a number of important data reports: Tuesday comes the Case/Shiller Housing Index and the Consumer Confidence report; Wednesday brings the Pending Home Sales Index; Thursday has the ADP Employment Report, Jobless Claims, and the GDP report; and Friday comes the ISM Manufacturing Index. All of these are important barometers.