July's consumer confidence fell to the lowest level since March 2009:
Source: University of Michigan/Reuters.
The date that the confidence level has reverted back to is meaningful. In March 2009, the financial crisis was in high gear, stocks traded at nearly half of the value they do today, the economy was shedding half a million jobs a month, and it looked like a real possibility that Bank of America (NYSE: BAC ) and Citigroup (NYSE: C ) would be nationalized. Growing, high-quality companies like Amazon (Nasdaq: AMZN ) and Apple (Nasdaq: AAPL ) could be bought for next to nothing -- both companies traded like they'd never grow again, even as actual earnings came in beautifully. Fear replaced reality. Nobody had faith in anything. If it ever felt like we were in a legitimate depression, it was in March 2009.
Do consumers really feel as glum today as they did then?
Consumer confidence is driven by four big factors: stocks, gas prices, jobs, and policy -- probably in that order.
The current slump likely isn't caused by stocks. Major indexes are still spitting distance from multiyear highs. It probably isn't gas prices, either. While higher than they were a year ago, gas prices have fallen 11% over the past two months. Jobs likely have something to do with it, as June's official government employment numbers were pretty much a bust. But even that isn't convincing: Jobs have been slow for months, and other private job measures show June might not have been as bad as the government's numbers imply.
What's left? Policy. And here there's a culprit flailing its arms: the debt ceiling.
It's hard to say for sure, but odds are the debt ceiling charade drove the sudden plunge in confidence. Even if everyone thinks the ceiling will eventually be raised, witnessing this much dysfunction in Washington does a number on confidence. The irony is that the reason some politicians are digging their feet in on the debt ceiling is because they say deficits are causing business-crippling uncertainty, but their tactics for dealing with those deficits is creating even more.
If there is any good news, it's that consumer confidence is a coincident indicator. It tells you what just happened, not what's about to happen. Its ability to properly forecast stock and job growth is basically nil, and if anything it serves as a contrarian indicator. The future becomes brightest when the mood is the darkest. And it's pretty dim in here.