Consumers aren’t buying the idea of an improved economy

Today’s item from “the economy doesn’t make sense” file:

The University of Michigan consumer sentiment survey released today shows American consumers were less confident in July than June, when they weren’t all that snappy, either.

According to the press release:

Consumer confidence slipped in July as consumers anticipated that their personal finances would improve more slowly than they had anticipated several months ago. “While consumers believe the economic free-fall is now over, consumers see little reason to believe that the economic stimulus package will improve their finances anytime soon,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. Financial reversals were reported with equal frequency across all income subgroups, as was the expectation that joblessness would continue to increase. “It is difficult to determine whether the recent loss in confidence simple reflects the impatience of consumers or the sprouting of changed assessments of the effectiveness of the stimulus policies,” noted Curtin. In either event, “economic apprehensions can be expected to increase along with rising unemployment and stagnant incomes during the months ahead,” according to Curtin. Although consumer spending will improve during the balance of 2009, total personal consumption expenditures will post an lackluster increase of 1.5% during 2010.

What’s the confusion? Cash for Clunkers brought tens of thousands of Americans out of their shell to buy new cars, thanks to the government handout. And while it’s true “free money” is attractive, many of those consumers also committed themselves to five (or more) years of loan payments. If you were apprehensive about the economy and your status in it, why would you do that?

The survey also said that buying plans for homes and vehicles declined in July.

Consumers also had less faith in the government’s handling of the economy in July. Those holding an unfavorable view increased from 28 to 32 percent.

The “recession is almost over” narrative, and the one that says things are looking up, are increasingly getting attention in the media. But the public isn’t buying it. At least, not yet.

  • I want to believe it but the only evidence I see is articles written by the news media. People are still calling about short sales and I still have friends who have lost jobs and local business owners are still telling me that business is a bit slow. So maybe I am buying it but just don’t understand what it means in practical terms.

  • bobbydole

    Of course not.. remember in July we had that unexpected jump in the # of laid off? What was it, like 450,000? and every one was like, “this is the worst thing that could happen” we’re all screwed, we need Stimulus Package II Return of Stimulus? and “every one else was like, wait a minute most of that money hasn’t even gotten out there yet!”

    you guys remember all that? That was in July right?

  • Bob Collins

    That was June, i believe. In July we had a drop in the unemployment rate.

  • Bob Collins

    I wonder whether the consumer makes a distinction between economic news and all the other noisy issues — the health care debate, for example.

    They may well be just looking at the general state of intelligent discussion and saying “it’s hopeless” to the whole stew.

  • Kara

    I’d love to believe it’s getting better, but I’m not seeing it in my life. More layoffs are probable at my company, where we are all already on a paycut. My husband can’t find a job. We are college-educated professionals having problems in this economy. We aren’t going to the doctor because we can’t afford the high-deductible health plan my company changed to. Our house payment is secure. Our bills are being paid. We have no money left for extras right now.

    This recession is far from over in my house.

  • Tyler

    My theory is this – out of the billions of dollars burned by the U.S. government, there have really only been 2 big programs to push consumers to spend again. (Which seems stupid to me…this is a consumer-driven economy, right? Not industrial- or government-driven?)

    Those programs are Cash for Clunkers, and the First-Time Home Buyers tax credit. My opinion is this: the people that could afford to take advantage of those programs already have. The “good news” we’re hearing about housing and industry are bubbles generated by those programs, and now we’re out of people who have money to spend. In 4 months, thing are going to be worse.

  • bobbydole

    //That was June, i believe. In July we had a drop in the unemployment rate.

    Numbers for June, released in July?

  • bobbydole

    //They may well be just looking at the general state of intelligent discussion and saying “it’s hopeless” to the whole stew.

    Yup, i agree.. but i have nothing to back that up other then it makes sense..

  • matt

    I think there are a couple of dynamics – cash for clunkers being free money and time sensitive rearranged short term purchases. I doubt anything more than a small % of buyers were on shaky ground or weren’t in/going to be in the car market. As for the rise in consumer spending – many of us have been tight for the last 8 months, either we have saved to make those purchases or are blowing off some steam. I expect the rise to be an anomoly.

    Job numbers – June and July both lost jobs, June unemployment rate rose, July fell.

  • Bob Collins

    I don’t think consumer sentiment is solely people’s CURRENT ground, but what they think their ground will be.

    if you’re taking on debt, it makes sense to me you’re confident you can pay it back.

    What’s intersting about this situation is the idea that the news alone can drive a recession. Media got a lot of blame for running bad news that made people stop spending. But for the last few months, the media has participated in a rosy scenario, but people have no confidence.

    theoretically, shouldn’t it work in both directions?

  • John

    You have to think about individuals as opposed to the average. Polls show that most people feel apprehensive. However, there are still individual people who feel secure. Those are the people who are buying the new cars. A down economy is a great time to find bargains if believe that your income is secure.

  • bsimon

    Welcome to the new economy, where people spend what they earn, rather than spending what they earn + what they can borrow.

    When home values were rising at excessive rates, we, collectively, were cashing out the equity and spending that money, which now has to be paid back, often over 30 years. Couple that excess spending with the high debt load we (collectively) carried on credit cards and you can see how consumer spending was artificially high.

    Now, the workforce is shrinking (i.e. high unemployment) and the still-employed are often taking pay cuts (5% here). Credit is harder to get, so it should be no surprise that consumer spending is down. Consumer spending won’t rise appreciably until wages start going up.

  • kennedy

    Maybe it’s all in what you expect. My feeling is that the downward trend of recession has generally slowed/stopped. This doesn’t mean that all is suddenly well. My expectation is that the recovery will be slow. From a macro perspective, I expect unemployment to very gradually start declining. However, it will take a year or more for all the individual employment casualties to find work.

    Like previous posters have stated, if you are still in a stable position it appears the worst of the storm has passed. Recovering from a bad spot is different.

  • Elizabeth T

    //if you’re taking on debt, it makes sense to me you’re confident you can pay it back.

    … yeah … isn’t this how the housing market and economy tanked in the first place? Borrow money when you really believe you can pay it back.

    Only, the economy cares as much about my belief in my future solvency as it does about my belief in god. Both pretty intangible.

    I continue to be stupified that our entire economic plan seems to be spend, spend, spend!. If I spend it all now, then I won’t have any for later … when I’m unemployed. If the gov’t wants me to spend money, they’d better make sure unemployment will cover me for longer. ‘Cause I’m pretty sure that, after graduation, I’m going to be unemployed – and ineligible for unemployment benefits.