Tuesday, September 28, 2010

Consumer Confidence At Recession Levels Again

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. We have coined this term to describe the current monetary and fiscal policies of the U.S. government, which involve unprecedented money printing. This is the official blog of the New York Investing meetup.

September consumer confidence dropped to 48.5 from a lower revised 53.2 in August. The number was below analyst expectations. Stocks dipped sharply on the news.

The latest confidence numbers from the Conference Board show the disconnect between consumer perception of the U.S. economy and the spin being presented by officialdom is getting wider and wider. A confidence number of 90 or above indicates a positive view on the economy. The current number is lower than the lowest number from the 2001 recession. It is in fact barely above the lowest number recorded during any recessionary period since 1980, except for the recent Great Recession. Yet, government officials and the mainstream media keep telling us that the U.S. economy is in recovery. Based on their own experiences, American consumers aren't buying it.

The current conditions number for September came in at a close to a rock bottom 23.1. This view on the current state of the economy has yet to make any significant move up since the Credit Crisis in 2008. What caused the overall consumer confidence numbers to rise in the last year was the expectations component, which represents consumers' view of what the U.S. economy will be like in the future. After an onslaught of 'the economy is on the road to recovery' propaganda emanating from Washington, D.C. and dutifully repeated by the mainstream media, American consumers in 2009 started becoming increasingly confident that a better economy was waiting for them down the road. After not seeing this happen month after month after month after month after month after month, consumers are starting to have their doubts though. The expectations number fell from 72.0 in August to 65.4 in September. If it remains on its current trajectory, the overall confidence number will get back to where it was during the Credit Crisis.

Consumer spending accounts for 72% of GDP. Consumers without confidence don't spend. Consumers without jobs and credit don't spend either. Nevertheless, the government has consistently reported an increase in consumer spending taking place while total wages and salaries have fallen and available consumer credit has been reduced. The savings rate is higher than it used to be as well, which should lower consumer spending even more. But the rules of arithmetic and economics are different in Washington, D.C. than they are in the rest of the universe (the only other known exceptions are in government statistical offices in other world capitals). For some reason American consumers are choosing to view the world as they see it instead of accepting fanciful claims from the Washington con machine. If this continues, even stock traders might eventually catch on.

Disclosure: No positions.

Daryl Montgomery
Organizer, New York Investing meetup

This posting is editorial opinion. There is no intention to endorse the purchase or sale of any security.

1 comment:

FRF.Assoc said...

Excellent blog! I think that the U.S. consumer is tapped out.

On the BBC news site I noticed a couple of days ago that a high government official in Britain was encouraging those with savings to spend more, since the savings rates were so low. Right.

I'll bet they just can't wait to spend their retirement assets a gesture of kindness for those who so greatly contributed to the present crisis.

Sorry, but it's hard not to be cynical when those in authority give self-serving advice to those who work on when to spend their money.

It reminded me of ex-Pres. Bush encouraging everyone to spend to get the economy going. |B^)

Does anyone else see this obsessive spend-more model being the sole driver of the economy as a problem besides me?

Limited resources, exploding population, and ever-increasing resource depletion, used to produce mostly disposable products, on a race to where, again? I forget.

It seems to be headed for work ever harder so that you can support those that were lucky enough to retire before you!

Make all the illegals that are working, and have families with children who are U.S. born citizens, legal so that our population can at least support those who have already retired on Social Security.

I doubt that it will happen during a downturn, and this downturn will be protracted, unless Bernanke prints enough money to pay off the debts of everyone, which would, of course, guarantee hyper-inflation.