Wikinvest Wire

Consumer confidence fades

Friday, July 10, 2009

After improving steadily through the spring when "green shoots" were abundant, the mood of the American consumer darkened suddenly in July as indicated by the Reuters/University of Michigan consumer sentiment index which tumbled more than six points.
IMAGE The overall index was down from 70.8 in June to a mid-July reading of 64.6, however, the important "expectations" component paced the decline, down more than eight points, from 69.2 to 60.9, as hopes for a second half recovery continue to dim.

Rising unemployment, continuing waves of foreclosures, rising gasoline prices, and a flagging stock market all contributed to pushing this index below the level seen during the three months of spring when the average reading was over 68.

This bodes ill for next week's retail sales, a report that has seen declines in two of the last three months. Clearly, there will be no abrupt return to "business as usual" for the U.S. consumer, a group that still accounts for more than two-thirds of all U.S. economic activity.

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Anonymous said...

The business as usual model was based upon borrowing products from overseas, with no organized plan to pay them back. This plan was promoted by the central bank as a means of dealing with "excessive" overseas savings rates. Once they figured out that there was no plan to pay them back, overseas citizens stopped lending to the domestic private sector. The central bank responded by printing money to lend out (quantitative easing), and encouraging the public sector to borrow more.

The QE is de facto confiscating goods from domestic consumers to lend back to them, with the financial sector taking a generous fraction of the goods to mediate the exchange. The domestic standard of living continues to fall as a result. More hours worked per widget bought, and retirees being able to buy fewer widgets.

Ron Paul is right. The central bank should be abolished. Inflation is the enemy of consumers.

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