Record Low Consumer Sentiment, Better Credit Sentiment

Following last week’s unprecedented monetary policy moves, credit markets are happy, and many are saying that the worst is over … or at least that stocks are cheap. But there are two caveats. First, consumer credit is as tight as it has been in years, making for very stringent mortgage approvals and tighter guidelines on credit cards, car loans and other types of consumer credit.

Second, tighter credit is having deep effects on economic data. Consumer confidence is at a five year low as workers worry about job and income prospects. Also, according to the S&P Case-Shiller Home Price Index, home prices in 20 major cities dropped by a record 10.7% from January 2007 to January 2008. This measure of home prices, which measures single family existing homes, has fallen for 13 consecutive months.