Government Spending Binge Weighing on Markets and Consumers

As I noted in an earlier post on March 9th of this year, consumer confidence tends to lag the stock market by about 2-3 months. The Conference Board's consumer confidence index reported its second monthly decline at the end of October. Since the confidence index tends to lag the market by several months, it is not surprising to see this confidence drop in October. October was a down month for the S&P 500 Index with the index closing at 1,036 versus September's close of 1,057.

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Friday's preliminary release of the Reuters - University of Michigan Surveys of Consumers similarly saw an October decline in confidence as well to 69.4 versus September's 73.5. One positive is the S&P 500 Index is up 5.66% so far in November. A big negative impacting confidence is the level of the unemployment rate at 10.2% and seemingly continuing to move higher.

As the below chart of the S&P 500 Index shows, the market is struggling to break resistance at the 1,100 level. The weak attempt to move through this 1,100 level is evidenced by the declining volume.

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The White House and Congress may finally be seeing that its spending binge is weighing on the market and consumers. A recent article on Politico notes the White House may focus on deficits:

after voting for the stimulus, the bailouts, the health care legislation and a plan to address global warming, four enormous government programs. Obama has spent more money on new programs in nine months than Bill Clinton did in eight years, pushing the annual deficit to $1.4 trillion. This leaves little room for big spending initiatives.

Let's only hope so.

Comments

[Moon Kil Woong:]

I'm glad someone still sees spending as a burden on the economy and not a blessing. With depleted coffers and the public asking what comes next after the 2009 stimulus winds down the full impact of stupid behavior for the last 9 years will come home to roost.

I miss the good old days of Bush Sr. and Clinton when money was still money and a budget was still a budget. Things might have not been grand or glamorous those days, but at least they were stable. My how the mighty have fallen.

Nov 15 10:13 AM

[Gary A:]

I agree with the author but it looks like the confidence trend is down. Looks like the S & P may lag the confidence number, not the other way around.

Nov 15 10:23 AM

[bartpr:]

you are wearing blinders. what happened from 29 to 32. nothing. 45% of the banks closed. 25 % unemloyment. wealth concentrated in the top 1% of the population. interest rate high. balanced budget.
how much does the man in the street have to suffer for the sins of the wealthy.

you all sound like repub lemmings. spend a trillion on a stupid war, but screw the common man. let the ins companies get rich but let
those who lost their ins get screwed.

a retired independent
\

Nov 15 01:14 PM

[Denis Gould:]

A focus on the deficit may be welcome, but frankly it is too late. The damage is done. To get the budget back to balance is going to require a primary budget surplus for decades to come. Unfortunately trying to do that will lead to a chronically weak economy, requiring ever further budget retrenchment. It is a classic vicious cycle.

It would be good to inflate away the debt but with global over-capacity and weak growth that isn't going to work no matter how much money is printed.

The ultimate result is likely to be global government debt defaults, called "restructuring".

Nov 15 07:19 PM

[enigmaman:]

To make matter worse now you China saying that US interest rates are to low and fueling a marker bubble via the carry trade, they are very concerned this artificial market driving up stock prices and commodities will explode and derail their markets as well as the worlds. Sounds like China is looking to protect its treasury investments and its economy, with so much at stake I wonder how hard China will push Obama on this issue, and I wonder what Obama will do,

Nov 15 09:59 PM

[MarketGuy:]

I agree the govt spending is a severe weight. I disagree with the "lagging indicator" term again. I believe that term has a shelf life and needs to be replaced with "trending indicator" after an "indicator", (i.e..- employment data, consumer confidence), shows a lengthy repetitive behavior with obvious consistency.

Nov 16 07:59 AM

[schlumpf:]

its clear now, everything what is bad is a lagging indicator.

Nov 16 09:45 AM

[zagrebzagreb:]

Based on some of the comments, I'm not sure its clear that blaming Obama for the current deficit is absurd...

Before Obama even took office, the OBM was prediciting a deficit in the range of $1.2 trillion.

Let's be clear: this is a Republican manufactured issue. Shifting responsibility to the party that is cleaning up the mess another created is childish.

Nov 16 10:06 AM

[ebworthen:]

"Immoral Behavior Weighing on Society"

The only "fix" is a massive "restructuring".

Unfortunately, restructurings of this size generally involve World War.

Nov 16 10:08 AM

[Graham and ...:]

Government spending (of this size) equals moral hazard.

Nov 16 11:20 AM

[Living4Divi...:]

I am more worried about the stupid behavior for the next 4 years


On Nov 15 10:13 AM Moon Kil Woong wrote:

> I'm glad someone still sees spending as a burden on the economy and
> not a blessing. With depleted coffers and the public asking what
> comes next after the 2009 stimulus winds down the full impact of
> stupid behavior for the last 9 years will come home to roost.
>
> I miss the good old days of Bush Sr. and Clinton when money was still
> money and a budget was still a budget. Things might have not been
> grand or glamorous those days, but at least they were stable. My
> how the mighty have fallen.

Nov 16 04:50 PM