What are we to make of the Conference Board’s latest confidence survey?
“The decline in confidence between May and June was centered on consumers aged 35-54. By contrast, those under 35 and those 55 and older saw confidence improve this month,” said Dana M. Peterson, Chief Economist at The Conference Board.
We are in the midst of one of the greatest economic recoveries in history—from the worst pandemic in more than 100 years. Yet most consumers lack confidence because they don’t know where to look for information on the real economy, as opposed to what is on social media or in mass media headlines.
“Confidence pulled back in June but remained within the same narrow range that’s held throughout the past two years, as strength in current labor market views continued to outweigh concerns about the future. However, if material weaknesses in the labor market appear, confidence could weaken as the year progresses,” said Peterson
I believe this reflects the fact that most consumers like their current circumstances, but not outside events that may forecast the future. Why isn’t the rest of the world doing as well as Americans, say the headlines?
A lot of the confusion unfortunately comes from social media which doesn’t differentiate fact from fiction. A recent poll maintained that 50 percent of those surveyed believe we are in a recession, when real GDP growth has averaged 2 percent since the pandemic, and we are at full employment.
It reflects what I have called irrational pessimism. The other side of the coin is irrational exuberance, when excessive optimism that prices will almost always rise can cause asset bubbles.
Nobel laureate economist Robert Shiller has written about it. That’s because most market investors rely on hearsay and word of mouth, rather than research that would paint a more accurate view of market conditions.
Much of Main Street, ordinary working adults in the main, have become irrationally pessimistic for that reason. Surveys such as a recent poll by PEW Research show this.
“About three-in-ten Americans (28%) currently rate national economic conditions as excellent or good, while a similar share (31%) say they are poor and about four-in-ten (41%) view them as “only fair.”
I also believe most Americans are emotionally exhausted and still recovering from the pandemic, so they are now spending less which is slowing economic growth.
That is reflected in the major inflation indexes which were all flat in May. The Fed’s preferred Personal Consumption Expenditures (PCE) monthly inflation index didn’t rise at all on Friday in line with retail CPI prices (in blue line) reported earlier this month as seen in above graph.
When will consumers begin to realize this? Maybe in September when the Fed is now predicted to begin to lower their interest rates. That should make all of US happier!
Harlan Green © 2024
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