Monday, April 11, 2011
Over the years, the daily tracking of the Rasmussen Consumer Index has shown that a single factor generally tends to drive consumer confidence. In the wake of the 9/11 terror attacks, national security was the primary factor moving consumer confidence. At other times, it has been things like job creation or gas prices.
For most of the past year, many have talked about jobs as the key needed to recovery. Just over a week ago, the government released a positive report on job creation with 216,000 net new jobs created. It was the latest in a string of fairly positive reports. If jobs were truly driving consumer confidence, we would have expected to measure a significant improvement in the week following that report. However, just before the jobs report came out, the Rasmussen Consumer Index was at 79.1. A week later, it was two points lower at 77.0. That’s not a significant decline, but it’s certainly no improvement.
This raises the question of what will it take to improve confidence throughout the nation. What is it that people are reacting to in the economic sphere?
Looking at the 2011 data to date, the Rasmussen Consumer Index ranged from the mid-80s to low 90s for the first six weeks of the year. Since then, it has generally been in the high 70s to low 80s. The switch came in the week from February 15 to 22. On the 15th, the Consumer Index topped 90 for the last time so far this year. On the 22nd, it fell below 80 for the first time.
Many things took place as that decline began: the president introduced his 2012 budget; gas prices began to surge; the protests in Wisconsin really got started, and the unrest in Libya began (but the protests in Egypt had started three weeks earlier).
It’s also worth noting that the Japan earthquake happened nearly a month later and had no lasting impact on U.S. consumer confidence. The same can be said for the launching of U.S. military action in Libya.
We know from earlier times that confidence tends to decline rapidly when gas prices spike and rebuild slowly as prices fall. It may be that rising gas prices are blunting the good news of the jobs report. After all, half of all Americans have no money left over each month after paying their bills. For these people, a spike in gas prices forces a direct cutback in some other area of discretionary spending.
We also know that confidence has a political component. Following the election of Barack Obama, the economic confidence of Republicans fell rapidly, while confidence among Democrats soared. However, perceptions of personal finances do not follow the partisan pattern.
Given the data available, it is currently impossible to identify with confidence a single factor driving consumer confidence. Given the historic record, gas prices and the political debate over federal spending and deficits are prime suspects. Events in the coming months are likely to provide some additional clarity.
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