New Government Data Highlight a Bleak Big–and Small–Picture
- Feb 27, 2008
Common items are getting more expensive, and consumers are losing faith in the economy, according to data released on Tuesday.
Which is not good news for those hoping to prevent a recession (I’m guessing that would include pretty much everyone).
The Conference Board said its index of consumer confidence for February dropped to 75–below expectations, and the lowest reading in 15 years (except for during the 2003 Iraq War). Consumers are down about the current and upcoming economy, according to The Wall Street Journal.
To be honest, the Conference Board didn’t sound so confident, either. "With so few consumers expecting conditions to turn around in the
months ahead, the outlook for the economy continues to worsen and the
risk of a recession continues to increase," said Lynn Franco, director of the Conference Board’s Consumer Research Center.
Fan-tastic! Good thing our cost of living isn’t going up–yet wait, it is. The Labor Department announced Tuesday that the core index–excluding food and energy costs–was up a
seasonally adjusted 0.4 percent in January after an 0.2 percent
Energy prices rose 1.5 percent last month; gas was up a whopping 2.9 percent. A New York Times article today said gas prices may hit $4 a gallon by spring, further dragging on household budgets.
Natural gas rose 0.7 percent, and food costs increased by 1.7 percent. (You know it’s bad when I sit down to dinner with a friend I hadn’t seen in awhile and one of the first thing she says is, "Seriously, have you SEEN what prices corn has been going for lately?")
Surely the rising prices aren’t helping with consumer confidence–but we’re in a vicious cycle. Rising cost of living prices weaken consumers’ faith in the economy, which, in turn, scares consumers into investing and spending less. Overall consumer spending–especially on nonessential items–drops, and the entire economy suffers. Which makes people more concerned about their personal investments and often prompts them to reduce spending–and the cycle begins again.
The bigger the strain on personal finances, the bigger the strain on the overall economy: But how do we stop the cycle?
- Spend wisely. Invest conservatively. Save. Make home improvements now, while you know you’ll be in your home for several years due to the market. The home is most consumers’ biggest investment, so invest in it to invest in your future.
- Encourage first-time homebuyers. They might be our strongest chance of getting out of the current housing slump because they’re the most logical group of buyers to attack the country’s ridicuously high housing inventory. Not only will young first-time buyers hopefully have strong enough credit histories (or at least, ones new enough to be fairly unblemished) to easily obtain loans in today’s market, their purchase won’t add another home to the market.
- Be positive. We can’t cut the amount of negative housing industry and
economic woe articles the media produces, but we can meter our reaction
to them. Housing goes up, and housing goes down. The market will improve. So keep the faith–consumer confidence is never going to rise if all we do is
focus on the negative now instead of the future forecast.