Consumers Feeling Blue Once More

Consumer sentiment points toward nervous times; the Fed is looking to sell subprime mortgage bonds; and GDP growth for 4Q10 was revised upward.

By Dees Stribling, Contributing Editor

Consumer sentiment waxed pessimistic in March, according to the latest Reuters/University of Michigan Consumer Sentiment Index, which polls 500 U.S. households about their attitudes on the economy. These are nervous times, as evidenced by the final March index, which came in at 67.5, compared with February’s final reading of 77.5.

The leading component of the index, expectations, was down to 57.9 from a mid-month reading of 58.3. Compared with the same time last year, consumer expectations are down 10 points.

Besides worries about events in distant places (Japan, Libya), consumers are paying close attention as more dollars fly out of their wallets for the same amount of goods, namely gas and food. Consumer inflation expectations for this year are 4.6 percent, up from 3.4 percent last month.

Fed aims to sell subprime MBS

Late last week, word surfaced that the Federal Reserve was considering selling off a lot of the bonds backed by subprime mortgages–a good many billions in face value from the Maiden Lane II portfolio, which the central bank acquired from American International Group back when the insurer imploded. The Wall Street Journal reported on Friday that the Fed has hired BlackRock to help it sell the bonds.

AIG, now back in a position to acquire assets again, offered to buy the MBS back for $15.7 billion earlier in March, or roughly half of face value. Apparently the Fed feels that it can get a better deal, and an assortment of hedge funds are reportedly swimming around the assets, eager to feed on them, though strictly speaking that’s just conjecture, since the Fed isn’t talking about the deal on the record, and neither are the hedge funds.

In any case, it’s quite a turnabout. Two years ago, many of these assets were toxic untouchables. So either they were undervalued (because of contagion) back in the days of the panic, or investors have a renewed appetite for risky business that could end badly (again), or some hard-to-fathom combination of those two scenarios. In any case, the Fed stands to make some money on its investment, as it usually does.

4Q10 GDP revised upward, for what it’s worth

The U.S. Department of Commerce released revised U.S. GDP numbers for 4Q10 on Friday, bumping growth estimates for the economy upward from the second revision of 2.8 percent to a final estimate of 3.1 percent. The main driving factor in the upward revision was business investment, since the other major components of GDP, namely consumer spending, net exports and government spending, didn’t move that much.

That might count as good news, but considering the pace of events since then–both international and such domestic pressures as the price of gas–it’s not clear that the first quarter will see the same kind of growth. And even if growth remains at a similar pace (in the 3 percent range), that won’t be enough to pull the U.S. unemployment rate down very fast.

Wall Street had another chipper day on Friday, with the Dow Jones Industrial Average gaining 50.03 points, or 0.41 percent. The S&P 500 was up 0.32 percent, and the Nasdaq advanced 0.24 percent.