Friday, September 28, 2012

Consumers are Feeling a Little Better ... That's Good ... Not Great but Good

Consumer confidence continues to improve, and that's a very good sign. Both increasing stock prices and home prices are contributing to the better mood.

Now we just need the U.S. politicians to do their work in avoiding the year end "fiscal cliff" and for gas prices not to go sky high due to worldwide political issues. That's a mouthful, for sure, but I believe it's more likely than not that our elected officials will try to do something worthwhile shortly after the November election. Maybe they'll even act responsibly.

Consumer sentiment highest in four months has the details about the consumer's mood:

"A gauge of consumer sentiment is at its highest level in four months, led entirely by expectations, according to data released Friday

The University of Michigan-Thomson Reuters consumer-sentiment gauge rose to a final September reading of 78.3 — the highest since May — from 74.3 in August.... 

The improvement was due to a reduction in their debt levels and an increase in the value of their assets, primarily because of rising stock prices and home values,” said Richard Curtin, the survey’s chief economist. “Nonetheless, consumers anticipate a rocky economic road ahead. Small wage increases, rising food prices, slowly declining joblessness, higher taxes, and an overall economy that will not expand continuously but suffer some setbacks over the next several years.”
The sentiment gauge, which covers how consumers view their personal finances as well as business and buying conditions, averaged about 87 in the year before the most recent recession. Economists watch sentiment data to get a feel for the direction of consumer spending....

According to UMich, more consumers expect a continuing economic expansion than a contraction.

“In the September survey, more consumers spontaneously reported hearing news about job gains, and expected continued job gains during the year ahead,” according to the report.

However, most consumers expect small gains in wages, according to the report.
“Half of all households anticipate declining living standards as their incomes fail to keep pace with inflation,” according to the report.

Friday’s report echoes a separate reading on consumer confidence released earlier this week that showed brighter expectations. The Conference Board’s consumer-confidence index rose in September to the highest level since February. 

Elsewhere Friday, the U.S. Department of Commerce reported that consumer spending growth in August was the strongest in six months. Read more about consumer spending."
Summing Up

The consumer accounts for two thirds of our spending. Accordingly, when more money is spent due to increased gasoline and food prices, along with debt servicing costs and taxes, less money will be available to spend on other consumer purchases.

And that's especially true in a slow growing economy which continues to struggle and where wage and salary gains are hard to come by as a result of weak demand related to high unemployment.

Yet consumers are indeed spending more these days, even though they're saving less as a result. Of course, spending more than we're earning is largely how we got ourselves in this mess in the first place.

Nevertheless, it's good to see consumer confidence improving and evidence that perhaps some of our "animal spirits" are returning to the economy.

If we keep feeling better, maybe we'll finally get this awful economy behind us in the not too distant future.

Then we'll be able to go from good to great.

Of course, we're not there yet -- not by a long shot -- but we're slowly headed in the right direction.

And that's a good development, albeit not yet a great one.

Thanks. Bob.


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