Tuesday, March 28, 2006

Consumer Confidence Highest Since 2002

I'm not sure where this story is going, but I will make a note of it. This is from Yahoo News:

NEW YORK - Americans' optimism in the economy rebounded in March, sending a widely followed barometer of consumer sentiment to a near four-year high, a private research group said Tuesday.

The Conference Board said that its consumer index shot up 4.5 points to 107.2, the highest level since May 2002, when the reading was 110.3. Analysts had expected a reading of 102.

The latest measure was up from a revised 102.7 in February, which was down 4.1 points from January and broke a three-month rebound from last year's Gulf hurricanes.

The component of the consumer confidence index that assesses views of current economic conditions rose to 133.3 from 130.3. Another component, which measures consumers' outlook over the next six months, improved to 89.9 from 84.2 in February.

The Conference Board index is derived from responses received through March 21 to a survey mailed to 5,000 households in a consumer research panel. The figures released Tuesday include responses from at least 2,500 households.

So this private research group, the Conference Board, says that consumer confidence has shot up by around 4.5 points, to its highest level since 2002. Is this a short-term spike in improving consumer confidence, or is it a long-term trend? And how do we explain this improvement in consumer confidence, when just yesterday I worte a post regarding a Commerce Department's report on new home sales and prices have plunged? Or perhaps there is yesterdays post on consumer demand for home loan mortgages falling--how can I explain that?

We have been getting so many conflicting signals from this economy, that it is almost impossible to determine what is going on here. Home sales drop, but consumer confidence goes up? Jobless claims seem to go down, but consumers seem to believe they are optimistic in finding jobs. Consider this from the Yahoo story:

The report from the Conference Board said that consumers' overall assessment of current conditions remains favorable, but their views on labor market conditions was mixed. Consumers saying jobs are "plentiful" increased to 28.4 percent from 27.4 percent, while those claiming jobs are "hard to get" moved up to 20.7 percent from 20.2 percent.

Consumers' outlook for the next six months improved moderately in March. Consumers expecting business conditions to worsen decreased to 9.9 percent from 10.9 percent, while consumers expecting business conditions to improve increased to 18 percent from 16.2 percent.

The outlook for the labor market was also more upbeat. Those expecting fewer jobs to become available in the coming months decreased to 16.6 percent from 19.9 percent in February, while those expecting more jobs edged up to 13.9 percent from 13.4 percent.

We have a mess of economic contradictions here. These contradictions are certainly causing confusion, and perhaps some worry among consumers. Each new positive economic statistic encourages and reinforces hope that the economy is improving by economists, investors, and consumers, while each negative economic statistic sows their recessionary doubts. I'd say we're going to see more of these contradictory statistics, more of these wild mood swings with consumers. There are serious fundamental problems within this economy that have not been addressed--the budget deficit is one. The almost $9 trillion federal debt that we've incurred is another huge problem. Credit card debt on the American public is a third problem. All three of these are potential land mines, just waiting to explode and wreak havoc on the U.S. economy. We have a housing bubble that is now starting to collapse. We've had mortgage companies really pushing to sell adjustable-rate mortgages to consumers and sub-prime homeowners--what is going to happen when the interest rates start to dramatically increase, as the Federal Reserve has been raising interest rates? We've been in the midst of a job-outsourcing craze. And now the issue of immigration has become the front-and-center topic in Washington, where the debate is shifting towards illegal immigrants taking American jobs at less-than-minimum wages. All of these problems will have an adverse effect on the American economy.

I'm just not sure when.

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