German - American Sentiment

Economic confidence is plunging to multi-year lows. The latest reading for the University of Michigan/Reuters index of consumer sentiment dropped to the lowest level in 27 years (see chart below, click to enlarge).

Data: St. Louis Fed/Bloomberg

Things are no better in Germany, the world's third largest economy (or fourth, depending on who's counting). The ZEW indicator of German economic sentiment just hit the lowest level in 16 years at -52.4, versus an average reading of +29.2 since 1991 (red line in the chart below).

Data: ZEW

What is interesting about both low readings is that they are occurring not because of some transient negative event (e.g. war, natural catastrophe, etc.) but are due to real, fundamental economic reasons (credit and real estate crisis, high and rising food and fuel prices). They are thus unlikely to reverse in a meaningful way any time soon.

So far, the negative sentiment has not spilled over to consumer spending in a major way. But how long can this relatively benign situation last, on both sides of the Atlantic, if sentiment continues to remain so negative?