Market analysts and government officials would attempt to define overall confidence in the economy utilizing a variety of data. In my opinion, consumer confidence is ultimately a function of two factors-employment and housing.
While Uncle Sam has spent trillions backstopping various sectors of the financial markets and billions in economic stimulus, the size and scope of our employment and housing markets vastly overwhelm Uncle Sam's ability to ‘prop them up.' As a result, I am not surprised to see the monthly data on consumer confidence reflecting real weakness.
Bloomberg provides further insight on this topic in writing, U.S. Economy: Consumer Confidence Drops On Unemployment Concern,
Confidence among U.S. consumers unexpectedly fell for a second month in October, reinforcing the views of Federal Reserve policy makers who say household spending will be restrained by rising unemployment.
The Conference Board's confidence index dropped to 47.7, trailing the lowest economist forecast, from a revised 53.4 in September, a report from the New York-based private research group showed today. A measure of employment availability slid to a 26-year low. (LD's highlight)
For those unaware, 26 years ago the U.S. economy was just rebounding from the pangs of a serious economic recession combined with a massive dose of inflation. Wikipedia shares a few chilling insights on that period,
Paul Volcker, a Democrat, was appointed Chairman of the Federal Reserve in August 1979 by President Jimmy Carter and reappointed in 1983 by President Ronald Reagan.
Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983.
The federal funds rate, which had averaged 11.2% in 1979, was raised by Volcker to a peak of 20% in June 1981. The prime rate rose to 21.5% in ‘81 as well.
These changes in policy contributed to the significant recession the U.S. economy experienced in the early 1980s, which included the highest unemployment levels since the Great Depression. Volcker's Fed also elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of the high interest rates on the construction and farming sectors, culminating in indebted farmers driving their tractors onto C Street NW and blockading the Eccles Building.
In assessing the economic situation from the early 80s to that of today, I actually think that period represented an easier scenario. Inflation was the primary problem which compelled Volcker to ‘whip inflation now' via the chokehold of an exceptionally high Fed Funds rate. That sharp increase in rates led to a recession and lousy employment situation.
In many respects we are now faced with the reverse. We have a lousy employment situation and deflationary forces within wages and real estate. Merely printing money as Uncle Sam has undertaken does little to nothing for the job market. I do not see that changing anytime soon. Neither do the people surveyed for this Consumer Confidence report. Bloomberg highlights,
The share of consumers who said jobs are plentiful dropped to 3.4 percent from 3.6 percent, according to today's report from the Conference Board. The proportion of people who said jobs are hard to get increased to 49.6 percent, the highest level since May 1983, from 47 percent.
The proportion of people who expect their incomes to rise over the next six months decreased to 10.3 percent from 11.2 percent. The share expecting more jobs fell to 16.3 percent from 18 percent.
Buying plans for automobiles, homes and major appliances within the next six months all decreased this month, today's report showed.
...and there is very little Uncle Sam can do about it.