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Posts Tagged ‘Consumer Spending’

Consumer Confidence in the U.S. Continues to Dip

October 28th, 2009 Comments off

After declining in September, consumer confidence in the United States continued to erode in October, according to the Conference Board. This business organization compiles the Consumer Confidence Index, which declined from 53.4 in September to a sobering 47.4 in September. This dip surprised analysts, who expected to see stability or even a modest increase in consumer confidence.

It really should not have been a surprise to the financial wizards. A disastrous and still increasing rate of unemployment, compounded by record levels of home foreclosures, hardly creates an environment conducive to consumer optimism.

The economic implications of eroding consumer confidence are clear. Prior to the onset of the global economic crisis, the American consumer generated more than 70% of U.S. GDP. Even with massive deficit-funded stimulus programs, the retreat of the American consumer has created a collapse in economic demand that  simply cannot be made up. If there is a recovery, it clearly won’t be led by the consumer.

But without the releveraging of the American consumer, where else can the slack be made up? The bad news is that Ben Bernanke actually has an answer for that economic predicament. It’s called money printing.

 

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com

Where is the American Consumer?

August 15th, 2009 Comments off

At  its peak level of GDP, the U.S. economy depended on the American consumer for more than 70% of its output of goods and services. It has been the deleveraging of the American consumer, and to a growing extent his/her unemployment, that has been the catalyst of the U.S. recession. And not only America; the centrality of the U.S. consumer to the overall global economy has meant his pulling back on a debt induced shopping spree has sparked a worldwide synchronized recession.

The vast amount of money that Uncle Sam has borrowed to fund a nearly $800 billion economic stimulus program is supposed to substitute for the falloff in consumer demand, stop the avalanche of job losses and in the process regenerate consumer spending. The perception that this policy response was beginning to bear fruit has been the foundation of a recent flurry of statements emanating from the Federal Reserve, intimating that the recession was winding down, with recovery just around the corner. Both the Fed, Obama administration and Wall Street fully expected that the July retail sales figures would reflect a return to growth in consumer spending, juiced up by a taxpayer funding “cash for clunkers” gimmick aimed at kick-starting auto sales.

When the official sales figures were released by the Commerce Department, jaws dropped right through the floor. Instead of the .7% rise that was expected, July’s retail sales figures revealed a decline of .1%. However, the reality was much worse than even the posted decline, for the July figures were artificially inflated by a large increase in automobile related products due to “cash for clunkers.” Without the engineered car driven increase in consumer purchases, the actual retail sales contraction was .6%.

The ugly truth is that no matter how manipulated official economic statistics are, including the U3 unemployment number, the reality is that total consumer purchasing power, reflecting the number of hours worked multiplied by average wage, has declined to a level that makes it virtually impossible to recreate vigorous economic growth. Despite the happy talk from Washington,  I think it would be surprising if the Obama administration does not ask Congress for a second massive stimulus package before the end of the year.

Should a second stimulus package be proposed by President Obama, he may encounter stiff resistance from Republicans and fiscally conservative Democrats over concerns about the exploding national debt. However, it is likely that the Obama administration will place a higher priority on going into the 2010 mid-term elections with the ability to claim they have reduced unemployment rather than positioning themselves as fiscally responsible.

Higher deficits, however ,create the danger of inflation and much higher interest rates. Escalating interest rates will serve as a brake on economic expansion, defeating the purpose of deficit  funded stimulus programs. Now, in that situation, one can always resort to monetary policy, with the Federal Reserve reducing interest rates. However, in this unique economic disaster our planet is currently navigating its way through, the Fed, as with many central banks throughout the world, has already reduced its funds rate to close to zero.

Could the Obama administration be running out of options? If fall retail sales continue to plummet and unemployment rises, things could get even more ugly for the problematic American economy.

 

For More Information on “Global Economic Forecast 2010-2015” please go to the homepage of our website, http://www.globaleconomiccrisis.com