Research >> Economics
University of Michigan Consumer Confidence Jumped to 64.1
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Consumer confidence continued to improve in November from its August low when pessimism was dominated by negative reactions to the Congressional debate on the debt ceiling. The failure of the super committee to reach an agreement comes at a time when consumers had anticipated a slowly improving economy, and more importantly, slow gains in employment. While it is too early to determine how the failure will influence consumers’ economic expectations, the lack of an extension of the payroll tax cut and unemployment benefits will have an immediate negative impact on consumers and, unless extended, could further dampen holiday spending.
Stagnant Personal
Finances More households reported that their finances had worsened rather than improved for the 48th consecutive month, and income declines were spontaneously mentioned more frequently than income gains as the primary reason. When asked about prospects for the year ahead, just 22% of consumers expected their finances to improve. And even with the lower level of anticipated inflation, half of all families expected falling living standards in 2012.
Confidence in Fiscal and Monetary Policies at Record Lows
In each of the past four months, the majority of consumers unfavorably rated the policies of the Obama administration, and in the past two months, the majority voiced less confidence in the Federal Reserve. Consumers who lost confidence in both the administration and the Fed were extraordinarily pessimistic about the outlook for the national economy—half as optimistic as those who remained confident in both fiscal and monetary policies.
The Consumer Sentiment Index rose to 64.1 in the November 2011 survey, up for the third consecutive month from the August low of 55.7, but it was still well below the 71.6 recorded last November. Most of the November gain was in the Expectations Index, a component of the Index of Leading Economic Indicators, which rose to 55.4 in November, up from 51.8 in October, but still below last November’s 64.8. The Current Conditions Index was 77.6 in November, up from 75.1 last month but below last year’s 82.1.
What will translate a political riff into an economic calamity for many families is if the payroll tax cut and unemployment benefits that are scheduled to expire at the end of December are not extended. Consumer confidence is now quite vulnerable to setbacks due to any number of adverse domestic and international economic developments. Doing nothing is not an option for Congress, the President, or the Federal Reserve since the lack of action will significantly raise the likelihood of a renewed recessionary downturn, which is already uncomfortably high.
Posted: November 23, 2011 Wednesday 11:00 AM