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The lowest Confidence in a Quarter Century

Written by A Forex View From Afar on Friday, April 25, 2008

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The University of Michigan-Reuters survey, reporting on Consumer Confidence, had the lowest read in 25 years. Respondents complained about higher prices, mainly food and gas, declining income, and falling home values.

Three out of ten people said that they plan to spend their Economic Stimulus Package rebate check, with the other 70% intending to either to pay debt, or to save it (this is new; US consumers trying to actually save money).

Michigan's analysts affirm that inflation coupled with uncertainty is very likely to hold back consumer spending in the current year, as it is likely to do in 2009. Most respondents replied that they expect the unemployment rate to grow, something that is known to heavily affect consumers' mood, and therefore their spending habits.

The worst part could be that consumers, due to media intoxication, think that the US Economy is at a recession at this point in time, and as such the GDP, Retail Sales and Housing numbers have little chance of picking up anytime soon. Recession really is a state of mind, because by the time the economics reveal that the R Word is here, the damage has already been done to Confidence. At that time the upwards swing tends to already be in place.

Nearly nine-in-ten consumers thought the economy was already in recession, and three-in-four anticipated that bad times financially would persist for at least another year. This was the worst assessment of overall economic since the early 1980's. “More consumers reported hearing news reports of unfavorable economic developments in April than any other time in the fifty years history of the survey, with job losses, rising prices, and the fallout from the housing and credit crisis dominating the reports.

It is a slowdown, most analysts don't estimate negative GDP so no Recession is officially in place. Consumers listening to the television and news would have a differing view of things it would seem. Even if a recession does officially hit, it's not the end of the world as we know it, but the USD will struggle to move higher until the dark mood lifts a little.

The US inflation rate at 4% is not something abnormal, the lowest (and the best) inflation level in an emerging country is around 10-15%, and these are the best cases.

The US 5.5% unemployment rate is by every possible standard very good. Again, it's not the end of the world.

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  1. 2 comments: Responses to “ The lowest Confidence in a Quarter Century ”

  2. By Maya on April 25, 2008 at 1:22 PM

    the 5.5% unemployment rate depends on how it's calculated. Some sources say it may go up somewhere around 9-12%

  3. By otion on April 26, 2008 at 6:52 AM

    There is no big surprize here. I wonder were the BLS comes with only 4% prices increase

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