Recanting An Earlier Statement: The UofM Survey May Be Meaningful This Week

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After a week in which the Fed expressed concern that "inflation may fail to moderate as expected" and the dollar did little to emerge from a long-running funk, this could be the week that the University of Michigan Consumer Sentiment Survey actually matters.

Stop me if you've read this one before: Consumer Spending makes up 70% of our economy.  When the cost of living increases for Americans, it has far-reaching implications that eventually trickle down to mortgage rates.

What people say and what they do are often two very different things but there eventually comes a tipping point where you have to pay attention.

This week may be that week.

First some background:  I don't drive a whole lot.  I live in Chicago and am walking distance to the El.  On weekends, I walk places unless I am headed to Dominick's, Costco or Trader Joe's.  For dinner or theater, we usually cab.  My car gets one new tank every 2-3 weeks, if that.

Now, check out the receipt at right.  This was my first $50 tank of the season.

My car is not large and neither is my tank, but I can't say the same thing for other Americans.  This is the Land of the SUV and we're all paying at the pump.  Surely other people are feeling the pain worse than me. 

And then you have the people that The New York Times calls Extreme Commuters.  They're getting punished, fer sure.

Back to my point.

The Consumer Sentiment survey is largely a waste, but when guys like me who rarely get behind a wheel notice that prices are moving higher, it helps to remind us that there are people that fill up their tanks 2-3 times per week.  That makes a major dent in a family budget.

Sooner or later -- if gas prices remain high -- there will be a breaking point for the consumer and that will spill over into other parts of the economy.  It's not a coincidence that credit card spending rose 209% in April.  Consumers may be using that last Visa and Mastercard lifeline as we speak.

Friday's survey is expected to show weakness, but if that weakness is over-the-top, there will be strong downward movement in mortgage rates as expectations for a slowdown pick up speed.