Economic Insights - March 2012

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Even as the Dow breaks through 13,000, many still think the U.S. economy is teetering on the brink of a long-dreaded double-dip.  Meanwhile, we argue that the absence of sunny skies does not mean that a tornado is about to hit. Consider the worries generated by the recent weakness in consumer confidence.  The Conference Board’s measure is currently 61, well below its 20-year average of 93.  The University of Michigan’s measure of confidence is 72.5, versus a 20-year average of 87.6. Both measures of confidence are lower than they were a year ago, despite roughly 2 million more payroll jobs — 2.2 million in the private sector — and despite more hours of work per worker, which signal even more jobs to come. As we’ve previously explained, there is no consistent relationship between what consumers are actually doing and how they tell pollsters they feel.  For instance, while they say they lack confidence, consumers are buying vehicles at a relatively rapid rate. Auto and light truck sales jumped to a 14.2 million annual rate in January, the fastest pace since early 2008, even beating August 2009, the sales peak for the cash-for-clunkers program.  At the same time, same-store retail sales were up 4.8 percent from a year earlier, and that excludes sales in all the stores that were open for less than a year. The idea that “how people feel about things” is a driver of economic activity has taken a huge hit in recent times.  But don’t believe just one data point.  Consumers were never more confident than in late 1999, just before the market crash and recession of 2000-2001.  And in 2007, confidence hit its high point just before the “sub-prime crisis” that led to the Financial Panic of 2008.

References

First Trust Advisors, February 13, 2012, “Be Confident in the Recovery,” by Brian S. Wesbury, et al.  © 2012 First Trust Advisors L.P.  All rights reserved. To view this article, please visit: http://www.ftportfolios.com/Commentary/EconomicResearch/2012/2/13/be-confident-in-the-recovery
The disconnect between consumer confidence and economic activity is borne out by virtually every available economic metric.  For...

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