Low Consumer Confidence and the Spending Cycle

 By: George Leong
We all know that consumer spending accounts for about 70% of the gross domestic product (GDP) growth in this country. And when confidence is low, you also know consumers may be more hesitant to spend, holding back on any major purchases, such as homes, vehicles, furniture, appliances and travel, to list a few. This will impact spending and GDP growth and the ability of companies to expand their businesses and hire. This is my concern; I feel that continued nervousness among consumers will impact GDP.

Consumer Confidence in August was another disappointment, with a dismal reading of 44.5. The reading was well below the estimate of 52 and the revised 59.2 in July. The reading is the lowest since April 2009 and clearly indicates nervous consumers.

To tell you how bad the readings are, economists say that a reading of 90 indicates a healthy economy, something that has not happened since December 2007 when the recession began. It looks like it will be some time until the confidence reading heads back towards the pre-recession level of 90. My very basic economic analysis is that the situation is not good.

Moreover, add in the fact that the U.S. housing market remains in a mess after prices declined to below the lows of 2006 and you'll understand my concerns going forward.

To drive the economy, consumers need to spend. We have interest rates at historical lows and quantitative easing. It is working, but not as fast as I would like to see.

The government can use fiscal policies, but with $14.2 trillion in national debt and at its ceiling looking for an increase in the debt level, we are just adding more debt to American taxpayers. Plus, spending more doesn't mean consumers will join in.

On the plus side, the Durable Goods Orders reading for July was better than expected. The headline reading grew 4.0%, well above the estimate of 1.9% and the negative 1.3% reading in June. The ex-transportation reading of 0.7% was also better than expected. The readings offer some optimism, but then it is only one month. We need to see a pattern.

A strong housing market is also critical, as homeowners tend to buy new furnishings, including many big-ticket items. This is not happening, as home prices continue to decline, dragged down by continued high foreclosures and short sales where homes are dumped below the mortgage value. The industry numbers support the weakness. Housing Starts of 604,000 in July were slightly below estimates and a decline from a revised 613,000 in June. Building Permits of 597,000 were also weaker than expected. New Home Sales fell to 298,000 in July, short of the 310,000 estimate.

Also consider that a key driver of the housing market is jobs. We need jobs and security in order to give buyers confidence to assume a mortgage and not to worry about losing a job and missing payments. The non-farm payrolls are due out on Friday and I'm not confident.

At the end of the day, we need to see confidence and the willingness to spend and not to worry about money. Only under this scenario will there be sustained spending and economic growth. Unfortunately, there is little for us to get excited about at this juncture.

Retire on This One Hot Stock!

This stock is up 232% since we first picked it. Our expert analysts say it will go up another 100% in the next 12 months! Our top 19 stock picks were up an average of 173.57% in 2010 (not a misprint). See where we are making money in 2011 and get our combined 100 years of investing experience working for you starting today.

Get your FREE report on our top stock pick immediately here.
Artice Source: http://www.articlesphere.com

Related Articles in Finance

People interested in the above article are also interested in the related articles listed below:

The Spring Budget 2017 was announced amidst much anticipation however, many feel that it was not the best job done by the exchequer. Although he covered different dimensions and tried to create a balance between various sectors, the budget is still not considered an exciting one by the experts. Some of the points work well on a long term basis while some are good for immediate effect.
Before you purchase your first home and finance your very first mortgage there are a few things to consider. Consider the following as you embark on your new life journey into homeownership. Before you hire a realtor or start looking at homes it is important to meet with a mortgage broker. Once you have met with a mortgage officer you can determine if you have credit problems that need to be solved prior to looking for a home.
Purchasing a contractor license bond is almost always a requirement of contractors before they are licensed to work on construction projects. Depending on the laws within the state, county, city or even subdivision a contractor license bond could be required. Without the necessary contractor license bond in place the contractors often cannot obtain the license that is needed to provide construction services.

More in Finance

Excellent, Larry. Thank you for taking the new article directory technology and making it work to the max. I encourage everyone to keep contributing and contributing regularly. I can attest to the fact that this site is already a strong directory in a field of many. Kudos to Larry!

Matthew C. Keegan
The Article Writer


I find it a delight to use both as an author and a publisher. It is full of nice little surprises that make the whole process of writing, reading and publishing articles a complete delight. This is one that comes out tops and beats the rest hands down.

Eric Garner
Managing Director


I did a Google search and came across your site. It was exactly what I was looking for and was elated to find such a broad range of articles. As I am launching a free magazine in a small town in Florida, I wanted to be as resourceful as possible while still being able to provide some content that is interesting and well written. Your site has all the variables in the mix. Excellent Site hitting all the notes in the scale sort of speak.

Mo Montana
Florida, USA

Article Topics

Copyright © 2005 - by Larry Lim, Singapore - Article Search Engine Directory at ArticleSphere.com™
All Rights Reserved Worldwide. All Trademarks and Servicemarks are the property of the respective owners.
ArabicBulgarianCatalanChinese (Simplified)Chinese (Traditional)CzechDanishDutchEnglishEstonianFinnishFrenchGermanGreekHaitian CreoleHebrewHindiHungarianIndonesianItalianJapaneseKoreanLatvianLithuanianNorwegianPersianPolishPortugueseRomanianRussianSlovakSlovenianSpanishSwedishThaiTurkishUkranianVietnamese