Recessions Are Built On Negative Shifts In Sentiment So Today’s News Isn’t Good

The Bloomberg Consumer Comfort Index fell to 58.9 from 60 in the week ended March 31, according to a report Thursday. That’s an eight-week low. Survey respondents’ sentiment on their personal finances posted the steepest two-week drop since 2015. All three main components in the index fell, with personal finance sentiment at the lowest level since January and the buying climate index falling to an eight-week low.

This is the third decline in the index in the last four weeks.

What is worrying is that the trailing data on the economy haven’t been uniformly negative so sentiment might be turning down in anticipation of a recession. Wages are up and so is the stock market, although retail sales slowed unexpectedly in February and companies added the fewest workers in March since late 2017. Maybe, some economists have speculated, higher prices for gasoline and smaller tax refunds are souring consumer sentiment.Which is worrying because once “feelings” turn south, they can be hard to turn around. And what we understand about recessions is that they are largely caused by consumers and business executives deciding to spend less in preparation for a downturn that hasn’t yet arrived. And that might not ever arrive except for those preparations.

Today’s survey doesn’t indicate that we are headed for a recession–the economy still looks to be growing at better than 2% for 2019. But it does argue that investors shouldn’t go to sleep on the possibility.