Consumer Confidence on the Rise

May 30, 2009 – 9:15 am – No Comment

Consumer confidence is one of those leading economic indicators mentioned in yesterday’s A Lesson in Recession, and it is rising! Despite jobless numbers that consumers have cared so much about that also causes money issues, combined with low home prices, consumer confidence is on the rise. The humorous thing is that it has not increased actual spending yet. “Consumers are not likely to spend just because they think things will get better,” said Mark Vitner, senior economist at Wachovia. “They will actually have to see them get better.”

To best describe the economy’s current challenges, a closely monitored housing index released Tuesday showed home prices fell at the sharpest rate ever in the first quarter, though the drop-off was worse as a combined figure at the beginning of the quarter. Americans are also fighting an unemployment rate that’s expected to climb to 9.2 percent by the end of the month, up from 8.9 percent, as companies lay off more workers.

What you are likely seeing here is that the normal Macy’s shopper is okay with getting her jeans from Wal-Mart. People who have never looked at a coupon in their lives are now considering even clipping a few. Consumer confidence is up, but the amount being spent does not reflect it because people finally understand the concept of conservation. The fear is that this conservation is at the wrong time. When consumer confidence goes up, we hope that people will buy the price inflated Guess jeans or something instead of being okay with Wrangler from Wal-Mart. More money circulating through the economy, even if it is from inflated designer prices, is the key here, and for the first time in a long time we are just not seeing it.

The Conference Board’s Consumer Confidence Index’s 14.1-point surge to 54.9, following another big gain in April, is encouraging. Economists surveyed by Thomson Reuters were expecting 42.3. Just a few months ago, in February, confidence levels had hit a new historic low of 25.3. May’s confidence level is the highest since eight months ago when it was 61.4. The levels are also closer to the 58.1 we had just last May before the recession began, though this is still far from healthy. A reading above 90 means the economy is on solid footing. The Consumer Confidence Index is determined by a mail survey of a representative sample of 5,000 U.S. households from May 1 to May 19.

The consumer confidence report offered encouraging news to merchants and customers, after confidence plummeted to historic lows late last year causing so many retail establishments to run into so many problems and discouraging spending. Consumer confidence sank to a measly 38.8 in October after the recession began, when we were still arguing about what to call it, at that time lowest level since The Conference Board started tracking the data. It has fallen even lower since then. Thankfully, the recent two-month stock rally has helped spur dramatic rebounds in April and May, restoring a sense of strength that may bring us out of the recession quicker than expected.