Consumers nowhere near bottom

Posted by: Michael Mandel on April 11

I don’t like being negative. I’m an upbeat and optimistic person by nature. But when it comes to consumer spending, things have a lot further to fall before they hit bottom.

The latest bad news: The University of Michigan index of consumer sentiment fell to 63.2 in April, its lowest level in 26 years. This fits with my latest story, which said that consumer stocks are going to lead the stock market down further.

This is not going to end anytime soon. It takes a long time to work off $3 trillion in extra debt.

P.S. I promise a couple of optimistic posts soon, on how we can get out of this

TrackBack URL for this entry: http://blogs.businessweek.com/mt/mt-tb.cgi/

Reader Comments

Rycoka

April 15, 2008 05:26 AM

Hi,
I'm an Australian who has only recently developed an interest in economics, but I have to say this looks like a very difficult time for financial policy makers. My favourite scary site is a US commodities future charts site (http://tfc-charts.w2d.com/menu.html). This illustrates what looks to this layman like a huges chunk of inflation heading the way of consumers. If you are looking for some positive news, inflation is a great way to get debt under control. However, the question is, will the poor old consumers get a slice of the inflation pie through wage rises. Given that the word is that US companies are "cashed up" (given 6 years of 13% company profit growth - BEA National Accounts - this is not surprising) maybe there is some room for wage rises. Combine some good wage rises with higher prices (already looking inevitable) and some higher interest rates to discourage people from getting into more debt this may end up just a mildly unpleasant time - much like "the recession we had to have" in Australia in the 90s.

Dominic

April 15, 2008 01:24 PM

Rycoka

I lived in Australia for few years, a gorgeaous country by the way. If I could, I would go back in a heartbeat.
But let's not digress... ;-)
I remember very well that recession, my first year Down Under was in 1991. In that downturn, if I remember correctly, many people lost their homes and businesses, the government, albeit a Labor one, did let the "disease" run its course, more or less. This and other factors probably contributed to the "unwinnable" election of 1993 where the ALP, surprisingly, remained in power.
The problem in the US at the moment is that we do not want to give up on the spending binge for a while to emerge "stronger" on the other side, we have no politician with the guts to say to the public "This is a recession we had to have" like Paul Keating did.
We want the party to go on longer...the more we try to postpone the inevitable, the harsher will be the punishment.
There are 2 great lines from the ex PM Keating that could be perfectly "adapted" to the present US situation: The first is, as we said before "A recession we had to have" the second is "The idiot son of the establishment".
I do not think I need to explain whom I'm referring to...

Thank you for your interest. This blog is no longer active.

 

About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

BW Mall - Sponsored Links

Buy a link now!