Posts Tagged ‘consumer confidence’

Don’t look to us

12 August 2011

Households, that is.

Household consumption has long been the mainstay of U.S. GDP, and asset-bubble-driven consumption in turn helped drive the expansions of the 1990s and 2000s. But consumption spending has been weak in this so-called recovery, growing at only about 2% (annualized and inflation-adjusted) since its trough in spring 2009, and it fell in each of the last three months for which we have data (see graph). On top of that, today’s consumer sentiment numbers are the worst in three decades. To find worse, you’d have to go back to a month that included recession, double-digit inflation, Americans held hostage in Iran, long gas lines, and the eruption of Mount St. Helen’s (this is starting to sound like a pub trivia quiz . . . the answer is May 1980).

(Graph from www.data360.org.)

File under “Outraged and paying attention”: From the press release accompanying the consumer sentiment survey data (from Thomson Reuters / University of Michigan):

‘”Never before in the history of the surveys have so many consumers spontaneously mentioned negative aspects of the government’s role,” survey director Richard Curtin said in a statement.

‘The Obama administration received poor ratings from 61 percent of respondents, the worst showing among all prior heads of state. [I could not find a rating for Congress, but in recent polls Congress gets even lower ratings than Obama.]

‘”This was more than the simple recognition that traditional monetary and fiscal policy measures were largely spent; it was the realization that the government was unable or unwilling to act,” Curtin added.’

Yes. Imagine if the government had spent this year looking for ways to stimulate the economy rather than contract it through spending cuts. Failing that, imagine if if Obama had forcefully and publicly told the Republicans that it was absolutely unacceptable for them to hold the debt ceiling hostage to their root-canal economics. (It worked for Bill Clinton in 1995-96 with the government shutdown.) At least one branch of government would be seen as more focused on jobs than deficits.

Instead, as Curtin implies, the public rationally concludes that jobs take a back seat to deficit cutting on all major politicians’ agendas. And the attention given to the debt-ceiling debacle has much of the public expecting more of the same in connection with the budget appropriations deadline on Sept. 30, the deadline for the Group of Twelve’s long-term budget-cutting proposal on Nov. 23,  and the expiration of the Bush tax cuts on Jan. 1, 2012. It’s easy to imagine the entire rest of the year devoted to partisan trench warfare, isn’t it? Be glad these guys are on vacation.

P.S. Title inspired by The Clash, of course. Alas, poor London. Feels weird to read about traditional looting for a change instead of the financial variant.

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Unconfident consumers

29 June 2010

Well, can you blame them?

After two bubble-based expansions, in which first a tech stock bubble (1990s) and then a housing bubble (2000s) helped fuel huge levels of consumer debt, it seems rational for consumers to conclude that they’ve been living beyond their means and hence to retrench.  Today’s report of a 10-point drop in an already-low consumer confidence index is some hard cheese just the same.

The linked story, above, is a good one in that it actually provides information as to what is a “normal” or “good” level of the index.  90 is pretty good, 100 means “strong growth.”  So this month’s reading of 52.9 (again, down 10 points from May’s) is awful.  The best that can be said for it is that it’s double its all-time low of 25.3 in February 2009.

The story also mentions weakness in the housing market, where the Commerce Dept. reported Wednesday that new-home sales in May dropped 33% from their April level.  While a big drop is not shocking in view of the April 30 expiration of big tax credits for homebuyers, it was larger than expected, and the annualized rate of 300,000 new homes purchases is the lowest in the history of the Commerce Dept.’s survey (which began in 1963).  Again, considering the giant bubble in the housing market that preceded the current slump, it seems plausible to me that we have not yet hit bottom, i.e., the market may still have some correcting to do.

I hate to sound like a liquidationist, but if it’s true that the economy was on steroids thanks to a housing bubble and a frenzy of consumer debt, then our “natural” standard of living may be a good bit lower than we’d care to admit.

UPDATE, July 4:  Dean Baker says the housing bubble still has some deflating to do, in particular in California, New York, and Illinois.  He says house prices in those states are still way over trend levels and still abnormally high in relation to rents.