I’m skeptical about efforts to measure consumer confidence in a country as large and diverse as America. I wasn’t consulted. Were any of our readers? (How about a show of hands?) And the only surprising thing, really, is that economic experts would be surprised about their inability to forecast something as unpredictable as consumer sentiment. Economists are almost always wrong in their predictions. Why do you think Thomas Carlyle called economics “the dismal science”? The weather forecast on my iPhone AccuWeather forecast is far more reliable than the musings of out-of-touch economists.
No one in the real world is surprised that consumer confidence is slipping. Economists do things like measure whether rates of decline in one month are smaller than the rates of decline in the prior month, and conclude that things are getting better. People in the real world don’t think that way — we just see that decline is continuing. Where’s the cause for optimism that significant job creation will finally start in this recession that has lingered for almost four years now?
Why is consumer confidence so low? Well, wouldn’t it be fairer to ask why consumer confidence should be higher? The American consumer is like a punch-drunk fighter that has been absorbing repeated haymakers for months now. Whether it is the continued high unemployment rate, record numbers of home foreclosures, unending deficit spending, or paltry economic growth, there just isn’t any good news to grab onto. Why should consumers have confidence when the trading patterns of the Masters of the Universe on Wall Street have all of the stock exchange indices jacking up and down like a bungee jumper and our political leaders can’t or won’t present any plans that plausibly seem capable of changing things for the better?
Consumer confidence needs to be inspired. There just isn’t much inspiration out there right now, and more tired speeches from the President and congressional leaders aren’t going to provide any. I’d be surprised if the consumer confidence index surges anytime soon.
Yesterday I heard a segment of NPR’s Talk of the Nation that discussed the housing market in America. The host and his guests discussed how housing prices may have bottomed out, how buying a home is cheaper than renting in some areas, how buying a home and making those monthly mortgage payments is a good step toward financial discipline and accumulation of personal wealth, and other factors that weigh in favor of buying a house. They seemed mystified about why American consumers aren’t flooding into realtor offices to snap up homes at bargain basement prices.
I don’t think there should be much mystery about why the housing market is in the doldrums, however. In my view, it is almost completely attributable to a lack of confidence and optimism about the future. Many people in America have been deeply rattled by the economic turmoil of the past few years. They’ve seen friends thrown out of work and bright young college graduates unable to find a job. They’ve seen the value of their 401(k) portfolio on a roller-coaster ride and, if they are an existing homeowner, they’ve seen the value of their home fall with the bursting of the housing bubble. What’s more, over the past few years they’ve heard assurances from economists and politicians about an economic recovery and confident predictions of dropping unemployment rates and robust economic growth, and those bullish assurances and predictions have consistently proven to be unfounded.
The old saying “once bitten, twice shy” applies here. Americans don’t want to bet right now on economic growth; they understand that we teetering on the brink of dropping into another recessionary period. They just want to hang on to their jobs, hunker down, and wait until things improve in the real world and not just in some academic’s econometric models. Signing your name on a 30-year mortgage is a really big step. Why would you want to do it if you don’t have any confidence that you will keep your job and that better economic days lie ahead?
The only thing surprising about this news item is that some economists are still expressing surprise that American consumers aren’t more bullish about things. Seriously, what world do these guys live in? Leaving apart the weird notion that you can gauge something intangible like “confidence” with anything approaching scientific accuracy, what has happened recently that would encourage anyone to feel more upbeat about the economy?
For those who live in ivory towers or in the canyons of Wall Street, here is what those of us out in the country are seeing. We know people who are out of work and have been out of work for a very long time. We know college graduates who have gotten their degrees from fine institutions and can’t find even an entry-level job. We know that gas and food prices have gone up since last year. We’ve watched businesses close. We’ve seen houses in the area sold at foreclosure and other houses in the neighborhood that seem to have been on the market forever.
So don’t tell us that some arcane leading economic indicator should cause us all to be doing handsprings. We’ll believe the economy is getting better when our nephew can find a job and the house down the block gets sold. Until then, understand that we are going to be cautious, and careful — and don’t be “surprised” that we are staying that way.
The Wall Street Journal has an interesting article on middle-class spending in the past few years. Department of Labor statistics show that middle-class Americans cut their spending by 3.5 percent from 2008 to 2009, the steepest one-year decline in spending since such records began being kept in 1984. Spending by the richest Americans also declined by 2.6 percent from 2007 to 2009. The statistics show that reduced discretionary spending produced the decline, with people shelling out less on things like alcohol and eating out.
These statistics aren’t a surprise to anyone in middle America. The ongoing recession — only economists believe it ended months ago — has truly shaken the confidence of the American consumer. In the past, spending by optimistic Americans pulled the country out of recession. In this instance, that is not happening because there is too much uncertainty. No one knows whether their taxes will be increased, or whether another round of layoffs may hit their workplace, or whether a desperate family member will come to them asking for help. In such circumstances, the only prudent course is to cut back on non-essentials and try to make do.
This may be why the current recession is baffling economists whose models predicted a rebound in consumer spending. Most Americans may be optimists, but they aren’t crazy. They will adopt a careful wait-and-see attitude about whether there is real economic recovery before the purse strings are loosened again.
It is hard to argue that the lack of confidence is misplaced. Americans have been hit with lots of bad economic news lately. Jobs are scarce. Money is tight. Businesses seem to be taking a wait-and-see approach to investment, hiring, and growth. The constant efforts by the Obama Administration to convince us that the economy is, in fact, recovering leaves the feeling that our leaders are either out of touch or blowing smoke. There aren’t many signs that the economy is going to be booming any time in the near future.
Still, it doesn’t take a lot to change attitudes. BP’s apparent success in capping the blown deepwater well in the Gulf of Mexico may help people to start feeling better about America and its prospects. Let’s just hope we don’t get hit with more bad news that overwhelms a resurgence in consumer confidence.
The data on consumer confidence in the United States is very discouraging indeed. Americans are, by nature, optimists. In past recessions American consumers have spent and borrowed with complete confidence that things were going to get better and have thereby helped to pull the economy into recovery. That doesn’t seem to be happening in this latest recession.
The statistics reported today are amazing. For example, the percentage of people who said they were going to buy a car dropped to the lowest level since records began being kept in 1967. Imagine — Americans not buying cars, or even thinking about buying cars! What could be more compelling evidence of significant changes in the outlook of American consumers?
In addition, the linked article notes that one of the groups that experienced the biggest drop in consumer confidence was Americans under age 35. That result, at least, is not hard to understand. We have seen several years of college students and masters’ candidates unable to find or keep work after graduation. If you were an unemployed college graduate who was being strangled by enormous student loan debt, your outlook probably would be bleak, too.
I’m not quite sure when the day after Thanksgiving started to be called Black Friday — apparently because, for many stores, their sales on that day are what first pushes their year into the black — but I know that the day after Thanksgiving has been the unofficial start of the Christmas shopping season for decades. It has now become institutionalized — there is even a website the features only Black Friday ads.
I imagine that this year Black Friday is getting even more attention than usual. Economists, analysts, and forecasters will want to find out whether people are shopping at all, and if so where and for what. In our consumer-driving economy, if Americans aren’t diving into the Christmas shopping season with gusto the talking heads will say it shows a “lack of consumer confidence” and signals a longer and perhaps deeper recession. There is something to this line of reasoning. You can do all the surveys you want about consumer confidence, but whether people actually spend money during the season of spending is the best, most tangible evidence of what they actually believe about their own circumstances.
It is 8 a.m. as I post this, and many stores have been open for hours already, hoping to lure shoppers with special deals. For all I know analysts already are crunching numbers on the crowds that have shown up at stores. They shouldn’t draw any conclusions from my behavior, however. I don’t like shopping, and I think going to shop in crowded malls the day after Thanksgiving would be a very unpleasant experience, whether the economy is weak or going great guns.