PRE-CRASH INDICATOR -- Historic decline in sentiment

Nothing happened, but the news was bad anyway

Commentary: Historic decline in sentiment comes almost without warning

WASHINGTON (MarketWatch) -- It's no secret that Americans are depressed. The economy is barely growing, job growth is anemic, raises are rare, house prices are falling, the stock market is down, and oil is spreading across the Gulf.

So, in one sense, it's no surprise that the University of Michigan's consumer sentiment index fell in July. See full story on the drop in consumer sentiment.


Markets Hub: Earnings euphoria fades
After an optimistic start to the week, stocks are deep in the red Friday as big name companies like Google, GE and Bank of America feed concerns about the pace of earnings growth. An undertone of discouraging U.S. economic data as well as the potential fallout from financial regulation is also weighing on stocks. Paul Vigna, George Stahl and Drew Dowell discuss.

But the magnitude of the drop -- 9.5 points -- was astonishing, and suggests that Americans may have hit some kind of breaking point.

The sentiment index doesn't drop this much unless something really big shocks the economy and the national psyche. The shocking thing about this month's decline is that nothing really shocking happened between June and July.

In the 32-year history of this survey, it's fallen by 9.5 points or more on only six other occasions:

October 2008: The month after Lehman Bros. collapsed;

October 2005: The month after Hurricane Katrina hit;

September 2001: The month terrorists attacked America;

August 1990: The month Kuwait was invaded;

March 1980: The month the stock market plunged and confirmed that the nation had entered a recession.

Only once did the sentiment index fall so far without being accompanied by an event so big that it's in the history books: December 1980.

In that month, much like today, Americans were anxious about the future of the economy, which had just emerged from a recession. They had elected a president who promised big changes, but the people weren't quite sure what that meant, or whether the new policies would work. The market sold off. The economy dipped back into an extremely brutal recession soon thereafter.

History doesn't repeat, of course. The drop in the sentiment index doesn't mean a double-dip recession is in the cards, but it does mean consumers are fearful that everything is unraveling. They have no faith in government, or in business, or in the media, for that matter.

We could really use some good news right about now.

--Rex Nutting, Washington bureau chief

http://www.marketwat...?dist=afterbell

UHHH - we are in a depression - uhhh GREAT Depression - and why is no one noticing? These are the same people who didn't see the real estate market collapse? This next year will be interesting. Mary Anne

UHHH - we are in a depression - uhhh GREAT Depression - and why is no one noticing? These are the same people who didn't see the real estate market collapse?
This next year will be interesting.
Mary Anne

MaryAm, Ive always like your article a true reflection of the state of the economy we are. We are in depression, what you said is true.

Families in America are in a depression. Cost of raising a family is becoming more and more expensive quarter it seems.. Many families with with parents in their 20's, 30's, and 40's have very little money left over to do much on salary alone.. About a third of the families have extra income from their parents ( inheritance ) to whether the storm. Many others are in dire straights living paycheck to paycheck. I don't see the situation getting better anytime soon.. Many people looking for work, and no concentration by government to create those new jobs that add the benefit of adding private jobs down the line. Barry

Families in America are in a depression. Cost of raising a family is becoming more and more expensive quarter it seems.. Many families with with parents in their 20's, 30's, and 40's have very little money left over to do much on salary alone.. About a third of the families have extra income from their parents ( inheritance ) to whether the storm. Many others are in dire straights living paycheck to paycheck.

I don't see the situation getting better anytime soon.. Many people looking for work, and no concentration by government to create those new jobs that add the benefit of adding private jobs down the line.

Barry

What you said is true... but that give a good chance to prowl craiglist list for now, where you pick up lots of bargain especailly on very fine family inherited vintage equipments like the old jbl vintage speakers or mcintosh amps which i find and noticed are cheaper now. Lots fine family jewels are sold at a good prices. Its a great bargain for those who can afford. Even great antique furniture are sold.

Families in America are in a depression. Cost of raising a family is becoming more and more expensive quarter it seems.. Many families with with parents in their 20's, 30's, and 40's have very little money left over to do much on salary alone.. About a third of the families have extra income from their parents ( inheritance ) to whether the storm. Many others are in dire straights living paycheck to paycheck.

I don't see the situation getting better anytime soon.. Many people looking for work, and no concentration by government to create those new jobs that add the benefit of adding private jobs down the line.

Barry

What you said is true... but that give a good chance to prowl craiglist list for now, where you pick up lots of bargain especailly on very fine family inherited vintage equipments like the old jbl vintage speakers or mcintosh amps which i find and noticed are cheaper now. Lots fine family jewels are sold at a good prices. Its a great bargain for those who can afford. Even great antique furniture are sold.

Funny you said that... I just posted my car on craiglist...