U.S. Consumer: Battered but Not Beaten

First, the bad news. Only 14%, an abysmally low number, believe that job prospects will improve over the rest of the year. Nearly 60% believe high unemployment to continue over the next several years, hardly a demand-inducing statistic.

Despite the massive stimulus packages, confidence in government policy retreated with a third straight monthly decline (32% holding unfavorable views), though it is significantly better than the 50% a year ago. Consumers also shied away from big ticket items as homes, vehicles and major household durables declined in July. Additionally, anticipated price discounts continue to remain at their all-time peaks; a consumer-led deflationary indicator, despite the US ZIRP.

The good news is a significant improvement in sentiment on a YoY basis (63.2 vs. 53.5). Of course, July 2008 was still pretty squarely in the volatility backwash and consumers seem to be buying the V-shaped bounce (or at least something closer to the square root sign). Total PCE also is expected to increase 1.5% in 2010 - off an admittedly low basis but a promising indication after we consider the sharp (permanent?) increase in the US household savings rate.

Consumer confidence is clearly still very fragile. If we do see a secondary market crash, the resulting hit to the consumer psyche may kill much of the momentum that has been slowly building up. The other aspect of the story is that the currently unsustainable level of government spending is artificially inflating expectations, regardless of consumer approval of government policy. Even without a market crash, we may see confidence erode simply as federal programs scale back down to "normal" levels.

Comments

[Dave Wrixon:]

Drivel!

Aug 14 07:31 PM

[TTurk:]

V recovery from the consumer? Help me understand how the consumer comes back when 10% of the willing work force can't find jobs.

Delinquencies on home loans, car loans and credit cards are higher than they have been in our lifetimes. Banks and credit card companies are cancelling credit lines faster than you can blink an eye. Currently 23% of home loans, not already in or facing foreclosure, are underwater and if home prices fall another 5%, as many as 35% of home loans will be underwater. People have lost a third of their 401(k) and IRA values. New home construction and auto sales are 50% below their 2006 peaks. Now they are improving by 1-3%.

US families will take another 10 years to recover the wealth that was destroyed in the past three years.

Oh, I forgot, YoverY consumer confidence is increasing. Forget the facts, everybody is going to be back to their normal spending pace by the end of the year.

Aug 14 09:23 PM

[Moon Kil Woong:]

The funny thing about modern economic theory is we consider people as consumers rather than as individuals or households. Where is the standard of living, savings, or prosperity anymore. Is all that we matter in economic theory anymore is how much we spend? Is this because we no longer need to save since the Treasury and the Fed can make their own monetary expansion as long as foreigners at least half heartedly give credence to their promises they will not let the dollar go to 0 overnight?

Aug 15 11:43 AM

[j-dub:]

For any real change in sentiment to have a chance to occur, our government needs to show an inkling of concern for what the average American has sacrificed in the last year to keep our bankster institutions going.

THIS MEANS STOP SPENDING NOW, no cap and trade, no radical change in health care, no more programs and bills to squeeze employers further to pay for all the shit WE DID NOT WANT IN THE FIRST PLACE.


You wanna see a V shaped bounce, do ya?

Consume some magic mushrooms, wait an hour and start looking at some charts.
THERE'S YOUR V
Happy?

Aug 15 11:46 AM

[adan:]

consumer confidence will rise dramatically when each household has saved enough to feel "confidence" they and their family may survive -

true consumption will begin to be seen as the time we have left to live, peacefully, in good health, with those we love and respect....

Aug 15 01:16 PM

[WheelsComin...:]

The consumer is scared to death! Talk to people, not charts. People are hunkering down, cutting expenses to the bone, scared of losing their jobs, if they haven't already...How do you keep the train rolling with flat income levels over the last twenty years combined with a personal debt % that went through the roof? Consumer confidence is an oxymoron right now

Aug 15 02:59 PM

[whidbey:]

We are victimized by the goodie two shoes crowd;Things are" bad, but better than last year". Nothing to say and took too long to reveal the fact.

You might of said that the economy is on a knife edge and the direction it falls will likely be determined news flow: sentiment. That would be debatable and maybe interesting. What is driving consumer sentiment? Fatigue over the recession is huge, to believe in the markets future the investor must see something tangible in the offing. It is just not there, and above all, it is not unemployed consumers. What do you mean "not beaten" Why?

Aug 15 05:46 PM

[Larry House:]

Misleading title. I am afraid this article does not draw on any of the new thinking and perspective your profile says you bring to current issues.

I can tell you that consumers are on their heels. Credit card limits are coming down while interest rates are going up. Consumers are rightly saving more. People are learning to buy needs and not wants. Unempolyment rates give no confidence for consumer spending. Consumers are not dead and out, but I can assure you they are not robust now and will not be for a long time to come. I think this back-to-school season will be lackluster, and then the outlook for Chirstmas will be the same. I look for retailer stocks to come down this fall in a significant way. Boomers are spending less to build up retirement accounts smashed by the downturn. Retailers of nonessential items are on thin ice. All of this is quite clear and just common sense. Common sense will trump 50 cent economic terms any day.

Aug 15 09:26 PM

[Mr. Ed, Jr.:]

The walls are still closing in on the consumer.

Housing collapse, 401k implosion, continued job losses. ( 250,00 more jobs lost and unemployment number actually decreases...it's a miracle ! ) Increasingly, cities, counties, states are implementing unpaid furlough days. This will soon be considered normal.

And the other "wall" closing in is one consumers have considered as a way of life-- credit. Despite the happy talk about getting banks back to loaning to consumers, credit lines continue to shrink in this country. Banks and credit card issuers don't want to lend, and consumers don't really want to borrow.

There are many who are saying Americans will soon be back to their old spending habits, because that is their nature. They will be very wrong. This is a rare credit (debt, actually) recession, an event that changes habits for generations. I think the last one was about 80 years ago, and it had a name.... "The Great..." something or other...what was that called ?

The massive deleveraging will continue, so it's just a little too early right now, but they're going to name this one, too.

Aug 16 12:46 AM