Consumer Confidence Index: Any Signs Of Economic Recovery?

by The Smarter Wallet on February 7, 2009

When will the consumer confidence index show us signs of an economic recovery?

The generally negative news in the financial markets has a hidden silver lining, just as the buoyant and overoptimistic news of the stretch between 2002 and 2006 concealed the impending crash. It is not a matter of wishful thinking, but a view based on solid facts.

The Consumer Confidence Index

Check out the consumer confidence index over time. It is one of those economic indicators that’s used to gauge the economic health of the nation.

consumer confidence index, consumer sentiment graph
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Sure, it looks like everything is going to pot right now, as we are in the midst of a deep recession, but what interests me is what I see over the long term — that what goes down eventually comes back up. It’s the same with stock market cycles which are defined by bull and bear markets. Economic activity doesn’t stay down for long. For more such though-provoking charts, check out this article on business cycles that reflect historical economic trends.

We Can Only Fear Fear

The main cause of job layoffs has been the uncertainty factor. Let’s see how fear and uncertainty (that which rules the markets, along with the opposing emotion of greed) has affected our economy in this recent downtrend:

  • Financial companies haven’t been sure whether their subprime mortgages would allow them to survive and whether the Fed would help them with fresh capital.
  • Industrial companies could not be certain they could obtain the necessary credits to keep functioning at optimum capacity.
  • Small businesses, which employ over half the workforce in the U.S., have also fallen victim to tighter credit, which has only recently begun to flow. The recent measures adopted by Congress have begun to dispel those fears.

Because mistakes can be costly in general, if conditions are unpredictable then the best course of action is often to wait. Of course, if every firm in the economy waits, economic activity slows down (warns two professors of economics at Stanford). And yes, I can state unequivocally, without an economics degree, that the main problem of our downturn is not the lack of market or money, it’s the devastating psychological factor called insecurity.

How Do You Feel About the Future?

If I am not secure in my job, how can I, the average consumer, embark on additional long term debts or why would I buy more than everyday necessities? But by removing the uncertainty factor, this is what we can expect: with economic uncertainty dropping, it is believed that growth will resume by mid-2009, according to those aforementioned two Stanford professors.

They urge President Obama and Congress to enact the 2009 stimulus plan as soon as possible: it could very well be too late for the stimulus plan to have any positive effect on the economy if the government delays the package until the summer.

consumer confidence index, economic recovery
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Looking For Signs of Economic Recovery

Although we’re seeing some good news amidst the economic turmoil, the stories are not necessarily indicative of economic recovery just yet. What they do tell us is that perhaps, things are not as bad as they are purported to be, especially in the media.

Check out these typical news stories, which still do appear in media reports despite the current economic climate:

  • School stocks jumped on the news, with Apollo Group up almost 8%, and DeVry and Strayer up about 5% each. ITT Educational Services rocketed more than 15% and Corinthian Colleges surged nearly 18%.
  • IBM’s profit and 2009 outlook beats expectations…
  • Apple has impressive quarterly numbers.
  • Facebook, the popular social network, which now has more than 160 million members, could even end up being more influential than Google.
  • The construction spending report on the week of January 8 was relatively upbeat, though not enough to improve the overall outlook.
  • PNC Financial Services Group Inc., which owns the bank National City Corp. and Bank of New York Mellon Corp., both reported profits a day after financial stocks plunged on fears that massive writedowns could spread throughout the industry (Jan 22, 2009).

Aren’t We Still A Rich Nation?

Let’s not forget that we are still a rich and powerful nation (at least, that’s been the reputation of the United States). We are also a model of democracy, illustrated by our choice of the first black president. In other less fortunate nations, millions of people are anxious to migrate to our shores and fulfill their dreams. Is this a picture of despair, as depicted by Edvard Munch’s painting (The Scream), or is it a good reason to work harder than ever and recuperate our prosperity?

May “Hope” Lead Us To Economic Recovery

Could we be seeing some economic optimism spurred by the U.S presidential inauguration? Obama is giving us hope, one of the most important elements in our economy and that which governs the markets. The Obama stimulus plan and rescue package will give us more than a trillion dollars to inject into our “patient”, the U.S. economy. Although there’ll be payback later, it’s still something we eagerly anticipate to help jumpstart our economy.

If people have hope, their fears will disappear as credit continues to flow to and from financial institutions. Consumers will spend again and the financial crisis will be much less severe than predicted. We should see positive results by the beginning of the third quarter, not just in our country, but all over the world to which our future is inextricably tied.

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{ 2 comments… read them below or add one }

1 Nicky Jameson February 9, 2009 at 9:38 am

I am very relieved to find such an optimistic article amongst the many pessimistic ones. Well written – we need more of this.

2 Russell McCarthy October 2, 2011 at 8:12 am

NICE….. 30 months AFTER this was written…. 4 trillion spent… Solyndra and Lightsquared CORRUPTION revealed….. Fast and Furious Debacle under investigation…. Pelosi’s Brother-in-Law involved in 737 MILLION dollar scandal…. unemployment over 9%…. Prices going UP…. Obama wants to spend another half TRILLION to STIMULATE the economy as our National Debt is at an all time high….

So, in summation – WE ARE FAR WORSE OFF !!!

This “president” MUST GO. The sooner the better.

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