US Consumer Is Battered But Not Beaten

Cornelius's picture

First, the bad news. Only 14%, an abysmally low number, believe that job prospects will improve over the rest of the year. Nearly 60% believe high unemployment to continue over the next several years, hardly a demand-inducing statistic. Despite the massive stimulus packages, confidence in government policy retreated with a third straight monthly decline (32% holding unfavorable views), though it is significantly better than the 50% a year ago. Consumers also shied away from big ticket items as homes, vehicles and major household durables declined in July. Additionally, anticipated price discounts continue to remain at their all-time peaks; a consumer-led deflationary indicator, despite the US ZIRP.

The good news is a significant improvement in sentiment on a YoY basis (63.2 vs. 53.5). Of course, July 2008 was still pretty squarely in the volatility backwash and consumers seem to be buying the V-shaped bounce (or at least something closer to the square root sign). Total PCE also is expected to increase 1.5% in 2010 - off an admittedly low basis but a promising indication after we consider the sharp (permanent?) increase in the US household savings rate. 

Consumer confidence is clearly still very fragile. If we do see a secondary market crash, the resulting hit to the consumer psyche may kill much of the momentum that has been slowly building up. The other aspect of the story is that the currently unsustainable level of government spending is artificially inflating expectations, regardless of consumer approval of government policy. Even without a market crash, we may see confidence erode simply as federal programs scale back down to "normal" levels.