"That's really incredible," a CNBC anchor said this morning, seconds after the Conference Board reported that consumer confidence dropped to its lowest level since April 2009.
Incredible? Not really. People are influenced by reality and also the perception of reality. They may have the same income they had last month. They may have the same jobs. They may have even been able to sock away a few dollars. But if you keep up a steady drumbeat of, "things are getting worse and we may be heading for another perception," how reasonable is it to expect people not to lose confidence?
Clearly, fear is not the only thing we have to fear. But fear plays a big part in increasing worry. And worry is what makes people stop spending and people not spending is what creates recessions and recessions are what gives people more fear, which increases worry, which makes people..... well, you get the picture, right?
"A contributing factor may have been the debt ceiling discussions since the decline in confidence was well underway before the S&P downgrade. Consumers' assessment of current conditions, on the other hand, posted only a modest decline as employment conditions continue to suppress confidence," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.
Those expecting business conditions to improve over the next six months decreased to 11.8 percent from 17.9 percent, while those expecting business conditions to worsen surged to 24.6 percent from 16.1 percent, the Conference Board said. Those anticipating more jobs in the months ahead decreased to 11.4 percent from 16.9 percent, while those expecting fewer jobs increased to 31.5 percent from 22.2 percent. The proportion of consumers anticipating an increase in their incomes declined to 14.3 percent from 15.9 percent.
But the people surveyed aren't economists. It's regular consumers. And what those consumers think about the future makes up 60 percent of the survey results.Their view of the jobs outlook depends on what the people they listen to say is the outlook on jobs.
Sometimes those are the TV and radio business reporters. Sometimes it's the presidential and congressional candidates who point out how horrible things are and how worse they're going to get if you don't elect them a year from now.
More often than not, we think what we're told we should think. So the emotional component of a country's economy certainly presents a problem for politicians and reporters -- how to portray reality without contributing to a worse reality.
So far, few have mastered it.
American Public Media's Marketplace is taking a stab at it with it's new "Index," which purports to quantify the state of things on a daily basis via point system. It's unclear -- at least to me -- whether that's a step in the right direction of balanced economic assessment, or a step toward making the emotional component of the economy even worse.
What do you think?
I can describe the current doldrums on a wonkish level (Keynsian thought would be not enough stimulus, Austrian thought would be that we have not liquidated the malinvestment caused by low interest rates) but for whatever reason I can sense the bad moon rising outside of economics. Keynes would say that is the animal spirits of the markets - could be something supernatural, i dunno.
I think the average Joe can easily come to the conclusion that if something bad happens we are in no shape to deal with it from an economic or leadership position (no not an Obama knock an all of Washington, St. Paul, Madison, Denver, etc. knock). One more straw feels like it could break the back because we have exhausted our reserves. Our national trajectory is not anywhere near what it was in the 1930-1940's or even during the 1970's. Pull out the phony growth created by personal and government debt and we are stuck at level, our desire still runs at the same rate but we lack the real gas to fuel that desire.
All of that may be true, of course. But it would have also been true a month ago, and a month before that. What is it that led to such a big swing in just one month when the factors you describe haven't changed?
How many gray hairs does one need to have before they consider themselves to be gray-haired? Maybe 40% gray hair is a big tipping point?
Mid-July the Dow was 1000 points higher than it was Mid-August. I cannot say if that was the chicken and consumer confidence is the egg or the other way around. Debt crises in Europe eroded over the last month and we see a series of half measures that do not contain only can kicking. Our national debt crisis (issue, supposed problem, chicken little sky falling, whatever you like) seems to be echoing Europe. I have no idea if that gray hair is enough but again we keep seeing more gray and the Grecian formula (I did not start out thinking of that twist but I like it) isn't working.
Simple answer: Yes. Why we let ourselves be influenced by the daily ups and downs of the market place is beyond me.