Consumer
Confidence Is Killing the Economy
By ROBYN GEAREY
"Consumer
sentiment tumbles to historic low"
-- Reuters
"Economic gloom puts stranglehold on spending"
-- Pittsburgh Tribune-Review
"Wall Street plunge could cut consumer spending by $140B"
-- USA TODAY
With headlines like these, high unemployment, debt-ceiling drama, and a rocky
stock market, who wouldn't feel down in the dumps about the economy? So most
people do what comes naturally during scary times -- we scrutinize our spending
and cut back on dining out, movies, and back-to-school shopping. Then we wait
for a bigger sign from on high that things are looking up.
Since much of what fuels a recovery is simply consumers starting to feel like
things are going to get better, economists and journalists rely on
"consumer confidence" metrics to take our overall temperature, and
then tell the general public how everyone else is feeling about their
finances.
Therein lies the rub: The more we hear those gloom, doom, and despair
headlines, naturally, the more our perception of the economy worsens and, as a
result, our confidence levels fall even further.
Cracking the Consumer Confidence Code
The bureaucratic-sounding phrase "consumer confidence" really just
means how optimistic you and I -- the "consumer" -- feel about the
economy. If we're feeling good, chances are we're spending more. If we're
worried, we're usually spending less.
There are a
few different ways to measure it, but the most popular is the Consumer
Confidence Index, a monthly survey of 5,000 households. The numbers are
reported every month and then, of course, analyzed to death, which is how we
know that consumer confidence is the lowest it has been since 1980.
But as each of us tightens our belts a notch, there's a ripple effect that
spreads throughout not only the U.S. economy, but around the world.
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