Blog, Market Conditions, News

Economists React: Shift from ‘End of the World’ to ‘Regular Slump’

The following article contains economists and others weighing in on the jump in consumer confidence.

The index level is almost now back to where it was last summer, which was just before panic and paralysis set in and the index fell off a cliff to levels never before recorded. With the recovery in the index over the past two months led by the forward-looking component, the big question now is whether the increasingly widespread expectation that economic recovery is just around the corner will be fulfilled or dashed. Our belief remains that what we are seeing in these (and most other) data is a shift from “end of the world” readings to those that more closely approximate something seen in a regular economic slump. We do not think that conditions are going to progress in a straight line up from here, and our forecast remains that the road to recovery will be a longer and more difficult journey than most believe at the moment. –Joshua Shapiro, MFR Inc.
Although the index is still low in absolute terms, it is at its highest level since September, and the 30-point increase over the last three months is the largest three-month gain on record. Sharp gains in confidence typically occur right at the end of a recession. These gains are due to jumps in expectations, which is also what is happening now. –Abiel Reinhart, J.P. Morgan
This is a much bigger jump than we expected… Even so, if the new level is maintained the Conference Board index is consistent with real spending growth of less than 1%, which is not much of a green shoot. –Ian Shepherdson, High Frequency Economics
That was the biggest one-month improvement in the index in more than 6 years and reflected mainly a big 22.3 point gain in the index measuring expectations about the outlook. Consumers also assessed current conditions a bit more favorably, but that part of the index remains quite low… The improved mood of consumers is encouraging. If the job market stabilizes, the improvement in confidence could translate into more spending and make the better outlook a self-fulfilling prophecy. –Nomura Global Economics
This is another strong report in favor of the U.S. consumer, and we will take good news where we can. However, we cannot lose sight that the trend is key, and given that the index continues to sit in historically low territory (note: average index value has been 95 since 1977) should temper the immediate implications of this report. –Ian Pollick, TD Securities
The May consumer confidence report is another indicator that suggests that the recession’s grip on the economy has slackened significantly and that the recession may be drawing to a close. While the labor market indicators still point to significant job losses, both the jobs components of this report and the weekly data on initial jobless claims suggest that the peak rate of job loss is now behind us. –RDQ Economics
The level of confidence still remains low. Much of the weakness is due to accelerating job losses, deepening house price declines, soaring foreclosures, tighter credit standards, and financial market volatility. Confidence is still mired in recessionary territory although consumers are not as depressed as they were earlier in the year. –Stephen A. Wood, Insight Economics
Compiled by Phil Izzo