Wednesday, August 31, 2011

Consumer Confidence Plunges to Deep Recession Levels

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.

The Conference Board released its August 2011 consumer confidence numbers on Tuesday and they came in at 44.5, down a whopping 15 points from August. A reading over 90 indicates a healthy economy. The last time consumer confidence was that high was in December 2007.

The Consumer Confidence Index wasn't the only measure taken by the Conference Board that was down in their last survey -- the CEO Confidence Index, the Employment Trends Index, and Help Wanted Online Index were also lower. CEO confidence was down 12 points in the second quarter (before the budget ceiling negotiations became a heated issue).

Consumer confidence levels indicate that the U.S. has been in a continual recession since the beginning of 2008. The economic "recovery" that has supposedly taken place according to government reports  has not been corroborated  by this independent measure. After falling to 25.3 -- an all-time record low -- in February 2009, the index has so far peaked at 72.0 in February 2011. It was over 140.0 in 2000. The current August reading of 44.5 is lower than the worst readings from the 1980, 1981-82, 1990-91 and the 2001 recessions. So conditions are not seen as being as good during the current "recovery" as they were at the bottom of the last four recessions. 

What has been moving the confidence numbers up and down since the Great Recession began is the Expectations Index -- how consumers see the economy in the future. This is influenced by news flow and after a continuing barrage of media propaganda pumping up the prospects of the economy, this number rises. Every now and then though another crisis rears its ugly head and the Expectations Index plunges back to where it should be. It fell to 51.9 in August from 74.9 in July. The fight over the budget ceiling and the stock market drop in early August likely brought it back down to realistic levels.

What has hardly budged since the depths of the Credit Crisis is the Present Situation Index - how consumers see things right now. This was at 27.5 in February 2009 when consumer confidence was the lowest ever recorded. It was at 33.3 this August, two and a half years later. If the economy had truly recovered, this number should be over 90.  Instead, it's at rock bottom levels. Apparently, consumers can be fooled into thinking the economy will be better in the future, but not about their current experiences.

As soon as the dismal consumer confidence numbers were released, the media economic spin machine went into action to try to explain why they weren't so bad after all even though they looked really horrible. They dredged up numbers showing 47% of consumers plan on taking a vacation (or put another way --a majority of consumers can't afford to take a vacation)  and that more consumers plan on buying cars and appliances in the future. Not necessarily in the immediate future of course. This is probably going to happen after all the improvements in the economy take place -- the ones they keep reading about in the papers and seeing on the nightly news.

 Disclosure: None

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:


Its amazing how bad things have been the last few years.