NationStates Jolt Archive

Consumer confidence in the US has fallen for the second month in a row, the latest figures show.

The consumer confidence index for March dropped two points to 102.4, down from a revised 104.4 in February, said the New York-based Conference Board.

The decline in confidence was blamed on increases to gasoline (petrol) prices.

Analysts had been expecting a reading of 103, but Lynn Franco, director of the organisation's consumer research centre, said consumers remained upbeat.
source: BBC (http://news.bbc.co.uk/2/hi/business/4392035.stm)


Apparently "upbeat" now means: to have less confidence than before and less than we expected you to have.

Does anyone remember a firm called Enron?

Why are the lessons not being learned? Take the bitter pill while it is small, and it can be swallowed. Do not let it grow out of control.

Is it impossible to provide bad news without trying to pretend that it is really good news?

Now that makes no sense.

So you're saying that many corporations are ready to collapse, just like Enron and WorldCom?

Overall, the economy is in good shape. It grew 3.8% last quarter, and job growth has accelerated.

The only problem facing the US economy is oil, and this has a dispropotionately large effect on consumer confidence, since it eats in to discretionary spending and erodes purchasing power.

The economy is on the upswing as job growth accelerates and capital spending rises, so should a drop in oil occur the confidence rating will climb again.

So you're saying that many corporations are ready to collapse, just like Enron and WorldCom?

No. I am saying that there has to be some material grounds for a positive evaluation of something. Enron's shares were inflated in value by ungrounded figures. This type of denial syndrome appears to still be going on. This time in the evaluation of consumer confidence. Why does it matter, because production levels are dsriven in part by the consumer confidence levels. Artificialy claim that CC is good, and overproduction results.

Overall, the economy is in good shape. It grew 3.8% last quarter, and job growth has accelerated.

The only problem facing the US economy is oil, and this has a dispropotionately large effect on consumer confidence, since it eats in to discretionary spending and erodes purchasing power.

The economy is on the upswing as job growth accelerates and capital spending rises, so should a drop in oil occur the confidence rating will climb again.

What figures do you use to reach that conclusion? Balance of trade? Dollar value? Fiscal proprietry by the government? What?

No. I am saying that there has to be some material grounds for a positive evaluation of something. Enron's shares were inflated in value by ungrounded figures. This type of denial syndrome appears to still be going on. This time in the evaluation of consumer confidence. Why does it matter, because production levels are dsriven in part by the consumer confidence levels. Artificialy claim that CC is good, and overproduction results.
Well, it really is good. Last summer, the index almost dipped below 90. Just because it is a little below target doesn't mean that the sky is falling.

The CC indicator isn't especially accurate, since it polls only 5000 households and the results can be skewered based upon who is polled. It is mostly a generalized indicator meant to track only large scale movements (5 points or more, say from 100 to 105) that can predict to an extent change in the economy. So, the CC numbers are generally meaningless outside of large value swings.

What figures do you use to reach that conclusion? Balance of trade? Dollar value? Fiscal proprietry by the government? What?
Well, I'd say the same thing. The dollar is not too terribly strong, but that is a good thing. Productivity has yet to slow down, and the GDP is still expanding at a rate faster than any of the other major industrialized nations. Most of all, GDP is expanding, and jobs are being created. It may not be the best economy the US was ever in, but it is far better than in Western Europe or Japan.

What figures do you use to reach that conclusion? Balance of trade? Dollar value? Fiscal proprietry by the government? What?

Primarily GDP growth, job growth (which I will be the first to admit is still lacking), unemployment, industrial production, durable orders, retail sales, the Fed's Beige Book, and lastly construction spending.

These factors you mentioned have only a small amount of immediate effect on the economy, although the US's fiscal mismanagement is something of concern. The trade deficit is mostly meaningless as long as it does not outstrip GDP growth (for example, the trade deficit hit record highs during the CLinton Admin, but fiscal discipline and strong economic growth made it meaningless). However, this has happened and may prove problematic in the future.

I have never understood, and no-one has ever been able to explain in any way that makes any sense, why a growth in GDP is good, even when it is produced just by increased personal lending.
I also do not understand how an economy that is having to import more capital than oil can be regarded as healthy.

Howevere you do not seem to be bothered about the discrepency between the quoted numbers and the stated opinion. That was my real question. Why, when a published figure is worse than expected (not absolutely bad, just worse than expected) is it necessary to say things that contradict the numbers?

Howevere you do not seem to be bothered about the discrepency between the quoted numbers and the stated opinion. That was my real question. Why, when a published figure is worse than expected (not absolutely bad, just worse than expected) is it necessary to say things that contradict the numbers?

Primarily because individual numbers do not have meaning in economics. What is important is a trend. Should, for example, CC fall from 102 to 95 over the next 3 months, then there could be warnng signs of a slowdown or even recession.

I have never understood, and no-one has ever been able to explain in any way that makes any sense, why a growth in GDP is good, even when it is produced just by increased personal lending

Because consumer spending drives the economy, and it is often financed by credit or lending. During the 90's almost all of the spending and GDP growth was financed by lending and credit, most notable by the "wealth effect" of stock appreciation. Thus, almost all GDP growth is financed by lending to a degree, and it is the restriction of lending by interest rates that leads to slowdown or recession. (it must be noted that the opposite is inflation, which is even more undesirable than recession). So, it is simply impossible for it to occur any other way, in reality.

GDP = Gross Domestic Product. It is measured by spending, as that is easier than any other way of measuring it, and it has been tightly correlated to production in the past. This correlation fails though, when the increased spending is driven by personal debt and not increased production.
There are plentiful examples of the impending cridses if this trend is allowed to continue:
USA 1920s
Germany 1930s
Brazil 1970s

These places and times had steady GDP growth, but this funded only by lending. It has always burst into hyper-inflation or extreme recession (or both) in the past, why should it not do so again in the future. i.e. What is different this time?

Apparently "upbeat" now means: to have less confidence than before and less than we expected you to have.

Does anyone remember a firm called Enron?

Why are the lessons not being learned? Take the bitter pill while it is small, and it can be swallowed. Do not let it grow out of control.

Is it impossible to provide bad news without trying to pretend that it is really good news?

Simple explaination. It's a typo.

WHat was meant to be said was; ...consumers remained beat up.

:D

Primarily because individual numbers do not have meaning in economics. What is important is a trend. Should, for example, CC fall from 102 to 95 over the next 3 months, then there could be warnng signs of a slowdown or even recession.


Two months do not constitute a trend, but it does constitute a warning. Why the cheerful "No problem" attitude?

GDP = Gross Domestic Product. It is measured by spending, as that is easier than any other way of measuring it, and it has been tightly correlated to production in the past. This correlation fails though, when the increased spending is driven by personal debt and not increased production.
There are plentiful examples of the impending cridses if this trend is allowed to continue:
USA 1920s
Germany 1930s
Brazil 1970s

These places and times had steady GDP growth, but this funded only by lending. It has always burst into hyper-inflation or extreme recession (or both) in the past, why should it not do so again in the future. i.e. What is different this time?
Yes, but it is different this time for three main reasons:
1. A better structured banking system. Germany especially illustrates that, as interest was banned.
2. Greater liquidity to repay loans, and
3. Americans are far wealthier than any point prior. There may be a recession, but there definitly won't be a significant blow to the welfare of most people.

These places and times had steady GDP growth, but this funded only by lending. It has always burst into hyper-inflation or extreme recession (or both) in the past, why should it not do so again in the future. i.e. What is different this time?

This recently happened with the last recession following the crash of the NASDAQ in 2000. However, the Fedaral reserve had moved to contain these extremes by cutting interest rates, although this has resulted in a dollar glu in the world makret which may prove problematic.

In 1929:
The US had a stock bubble and an inexperienced federal reserve

In 1930's Germany:
Hyperinflation was already present, war reparations, political instability

In 1970's Brazil:
A similar situation and a severe problem for the economy in the future. At least, for now, foreigners are willing to finance our deficits. Still it is a problem and spending must be stopped along with tax hikes if necessary.