Is Consumer Sentiment Now a Leading Indicator?

Consumer sentiment classically lags trends in the real economy. But a new survey by Ipsos of consumer sentiment around the world might suggest our rules are wrong at the moment. There is a reasonable argument that consumer sentiment at the moment is signaling another recession, in advance of the event. http://www.ipsos-na.com/download/pr.aspx?id=10992


According to a new report by Ipsos, consumer assessment of the current state of their country's economy for a total global perspective, looks "as if the world took a step backwards by five months." 


The global aggregate national economic sentiment dropped two points this month to 38 percent. The downward movement comes directly after a period of relative consistency for the global average. This measure takes us back to March 2011 and is on par with January 2010, says the report. 


All three metrics measured monthly: assessments of their current national economy (-2 points to 38 percent), current local economy (-2 pts to 29 percent) and future outlook (-1 pt to 24 percent), reflect this drop. And, the future outlook is in a continuous downward trend: from 31% positive outlook in March 2010 to 24% now.


While Europe continues to weigh down the global average, though its downward movement in this wave is only one point across the board. It's the Middle East and Africa as a region that shows the greatest downward shifts.


Some economists and observers have been warning that U.S. pundits and consumers could literally "talk us back into a recession," as a self-fulfilling prophecy would occur. All the talk of another recession would lead to consumers further restricting their spending, which then would cause the next recession.


If the Ipsos data is matched by consumer behavior, that might already have begun to happen. The novel aspect would be if consumer sentiment this time actually was a leading indicator, not a lagging indicator, as traditional economics suggests is the case. It's just one more sign that our normal rules of thumb appear not to be working.