Consumers Aren't Buying Reelection Yet

John Ransom
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Posted: Jun 18, 2011 12:01 AM
Consumers Aren't Buying Reelection Yet

Consumer confidence numbers slid more than expected in June as Americans remain worried about inflation, a stalled recovery and dim job prospects. The numbers reflect a vote of no confidence in the Obama administration’s efforts at job creation, after a host of reports show joblessness still persistent and an anemic economic recovery.

At least one economist thinks that sliding consumer confidence linked to joblessness could do in Obama in 2012.

The University of Michigan reported that their consumer confidence index moved downward in June to 71.8 from 74.3 in May and well below economists’ expectations of 74. It was hoped that the recent decline in gas prices would spur greater confidence by consumers.

A breach of 70 in the confidence index could be considered a sign that a recession that affects consumer spending is settling in.

"Normally, sentiment readings of 60 mean it's a recession and readings near 80 mean times are okay, or almost good,” Carey Leahy, economist and managing director at Decision Economics told Reuters.   “Now the readings are at 70. That's quite representative of how people feel. Job growth is, at best, anemic and the unemployment rate is high. If you've been laid off, it's probably been for a long period of time. That can't help but affect these sentiment figures. And whenever you open the paper, there's more bad news. The one positive development is that gas prices have come down and businesses and consumers are not pulling in their heads."

Meanwhile Bloomberg’s survey of economic expectations showed Americans more pessimistic than they have been since March of 2009. Especially hard hit were older people and lower income groups.

“The Bloomberg gauge of economic expectations, released yesterday with the weekly comfort index, fell to minus 31 this month,” reports Bloomberg.com “the lowest level since March 2009, from minus 16 in May. The outlook deteriorated most among households making from $15,000 to $40,000 a year and among older Americans.”

While consumer confidence and expectation levels don’t necessarily tell economists how consumers will behave in the future, they do reveal an uncomfortable trend.

"The result is a disappointment for those who were hoping recent declines in gasoline prices might help kick-start the consumer where spending has recently lost some momentum. David Sloan, economist with IFR Markets told Reuters.  “Indeed, consumers do not appear very impressed with the fall in gasoline prices, with the 5 year inflation view edging up to 3.0% from 2.9% and the 1 year view seeing only marginal slippage, to 4.0% from 4.1%."

The biggest component to the downward movement in consumer confidence remains the jobless recovery says the U of Michigan survey chief:

“The majority of consumers are as convinced today as they were two-and-a-half years ago that their incomes will not increase, and the majority anticipate that the unemployment rate will remain stuck at about its current level for the foreseeable future,” said survey director Richard Curtin according to the Financial Times.

The Wall Street Journal reports that one economist says that the confidence numbers are a good predictor of the election results for incumbent presidents. By that measure Obama’s re-election is far from assured.

"There is plenty of time for the national mood to change, but the decline in income expectations is particularly telling," Steve Blitz, senior economist at ITG Investment Research told his clients according to the WSJ. "When the income up percentage is on the downswing, incumbents do not get re-elected."

The Journal cites loss of consumer confidence and high unemployment for the defeats of incumbent presidents Jimmy Carter and George H.W. Bush.

“A soft economy kept the U.S. consumer sentiment index low prior to former president Jimmy Carter's failed re-election bid in the early 1980s and George H.W. Bush's failed bid in the early 1990s [Eighteen months before each election it stood below 100: at 76.4 in May 1991 and at 96.0 in May 1979.],” says the Journal. 

“Just like Carter and Bush senior, Obama is likely to face an unemployment rate that is higher than 7.5% in the months before the next elections. The jobless rate now stands at 9%, and the Federal Reserve predicts it will be between 7.6% and 7.9% at the end of 2012.” 


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