Americans' loss of confidence: Worse even than it looks

Like a hypnotherapist, the Federal Reserve keeps trying to talk us into an economic recovery.

"You will not need lower interest rates to feel better," Chairman Ben S. Bernanke tell us in so many words -- something he and his fellow Fedsters are likely to repeat again today as they gather and, almost certainly, hold their benchmark rate at the current 2%.

But the latest survey of consumer confidence shows that the Fed's relatively hopeful message isn't registering. Americans feel downright terrible about the economy as it is, and their expectations for the near future are even more depressed, according to the Conference Board's June consumer confidence report, issued Tuesday.

The overall confidence index, derived from questionnaires sent to 5,000 families, fell to 50.4 this month, down from 58.1 in May and the lowest since 1992.

Worse, the expectations index in the survey -- how people figure things will look in six months -- dropped literally off the chart, to 41.0. That was the lowest figure in the 40 years of the survey, and broke through the previous low of 45.2 reached in December 1973 -- just as the economy was beginning to plunge into recession from the effects of the surge in oil prices that followed the Arab embargo announced that fall.

But something else in the latest survey really disturbed Lynn Franco, director of the Conference Board's consumer research center in New York, she tells me: The percentage of people who expect their income to drop in the next six months jumped to a record 15.9%. Even in December 1973, when consumers' overall expectations for the economy were dismal, only 10.8% expected their income to decline in the following six months.

Just 12.3% of consumers are expecting a rise in income over the next six months, compared with 19.4% a year ago.

It's true that consumer spending hasn't collapsed in recent months, thanks in large part to the federal tax rebate checks most families received. But once that money is gone, how do you have a consumer-led economic recovery in the second half with so many people feeling so bad about the big picture and about their personal financial situations?

Would lower interest rates help at this point? Maybe not. But in times of serious trouble it's always better for the Fed to have more bullets in the gun than fewer -- and right now, with its key rate at 2%, there aren't many bullets left.

What's more, with energy and food price inflation showing no signs of abating, Bernanke and other Fed officials have been talking in recent weeks about the need to begin raising interest rates as early as this fall to beat back price pressures.

Hike rates on consumers who are struggling to fill their gas tanks and have enough cash left over for groceries? It's true that quite a few other central banks around the world already have taken that unpopular policy route this year. But they're operating in economies that, for the most part, still are growing at a healthy pace.

The U.S. economy, by contrast, may not officially be in recession, but as Franco put it, never mind the terminology -- "to the consumer right now it feels like a recession."

Photo: And they thought they had it bad! President Nixon, right, listens to his energy policy advisor, John A. Love, in November 1973, one month after the Arab oil embargo was announced. Credit: John Duricka / Associated Press

Comments

[bee]

The Federal Reserve is a private corporation who prints our (the US's) money and decides our interest rates. What's wrong with this picture? Could it be that a private corporation's only goal is profit? Maybe we should figure out a way to give those powers to an organization whose main concern is the American people.

[William E. Jones]

While the economic aggregates are not all bad, the day-to-day things that most people think about are bad, with no turn-around in sight. Housing foreclosures and $4+ for a gallon of gas transmit negative information much more quickly than any government spin can offset it. I

[Brian]

The forecast from Chapman University, in the LA Times today, says we are in a recession. The very low consumer confidence you point to here agrees better with that report than with the UCLA forecast that says we're not.

The Fed's interest rate cuts have had little effect. Longer term rates like mortgages have not fallen. I refinanced a little over a year ago. I looked into refinancing again recently because of the "lower interest rates," but I can't get a rate as good as what I have now. As the recession takes hold those longer term rates will fall. That should have more effect than the Fed's cuts.

[Al]

The problem I have is the statements are being made by those put in place by the current administration which has constantly lied to the public. Also people watch as their income is capable of purchasing less and less food for the same amount of money while we're constantly told that there isn't inflation because they don't consider the rising cost of food inflationary information.

[Matt]

Technical definitions aside, the recession hasn't begun yet. Low consumer confidence usually precludes a recession. The worst isn't over. We are still traveling into the woods with no end in sight until well past 2010. The recession started in California with the housing crisis. Property speculation by house-flippers and housing development corporations which was huge in California until the market finally caught up with them. I harbor no ill will, but it was about time. Housing will not recover for the next 10-20 years. Welcome to Stagflation, not recession (correct economic terminology)!

[A patriot]

Congressman Ron Paul advocated aboishment of the Fed and the IRS, and a return to the gold standard. These are the solutions to the problems we face. But the corporate media wouldn't have it, and they refused to cover him sufficiently. Mainstream party-loving Americans wouldn't have it either and now they're getting exactly what they deserve. It's going to get alot worse people. Get ready and bend over! BTW the fed's mandate is price stability, they have failed miserably and destroyed our currency. WHEN WILL WE LEARN?

[Len Carrington]

Newly-released research bulletin examines effect of U.S. economic slowdown and Eurozone stagflation on China's economy -

http://www.globalsecuritieswatch.org/PRC_Sovereign_Risk_Review.pdf

[Cat Callahan]

Don't you think the "big boys" knew all this? Don't you think this is all by design?
Ronald Reagan once told someone that he hoped to "so disable the American
economy that it can no longer afford any welfare,etc."-He meant welfare for
working people-not corporate welfare which he supported to the nth degree!
As a good American I have always wondered if it was EVER wise to DISABLE
the American economy! What if something unforseen happened? What if we
needed the money and support in case of war, attack, and invasion-which begs
the question, why all the draconian laws when we leave our borders as open
as a seive? Vote Republican? I think not!