Current Consumer Sentiments
The Path to Pessimism
At the beginning of 2008 when the housing market started to crash and an increasing number of foreclosures were occurring, it became apparent to consumers that economic troubles were on the horizon. According to the January 2008 Country Report, GDP was forecasted to slow to 1.5% in 2008 but expected to recover to 2.6% in 2009 when “the worst of the housing downturn” had passed. This forecast was proven wrong, however, as in December 2008 a recession had been officially announced and in March 2009 the financial crisis and housing woes were still very much so in the headlines. As a result, the revised GDP forecast was a contraction of 3.1% in 2009. These events have influenced aspects of consumer’s lives, such as spending, saving, and unemployment. The devastating effects on these areas have put Americans into a negative social mood, further affecting the downturn in current consumer sentiment.
Consumer Spending and Saving
Reports compiled by the University of Michigan state that “there are several important factors blocking an increased pace of spending: uncertainty about future jobs and incomes as well as a desire to increase savings and decrease debt.” In fact, March 2009’s Country Report claims that, “the fearful mood among consumers is reflected in rising savings rates.” As of January 2009, the savings rate was 5.1% compared to only 0.3% during a similar period in 2008. Even so, the average amount of savings Americans have are much lower than what they were in previous decades and therefore, “over the past several years, consumers have begun to learn the advantages of postponing purchases in anticipation of lower prices.”
Unemployment
In September 2008, the unemployment rate was at 6.1% and has rapidly increased to 10.2% as of October 2009. Moreover, lay-offs, particularly in manufacturing, construction, and other service industries, have depressed consumer confidence which dropped 8.4 points to 50.9 on the RBC Jobs Index in November 2009 alone. It’s more than likely that the US will experience the “discouraged worker effect”, a consequence that occurs immediately after the recession in which discouraged Americans simply give up looking for work until the outlook is undoubtedly positive, as they did in the 1990s.
Consumer Confidence
Reported by The Conference Board, the consumer confidence index currently stands at 47.7, down from 53.4 in September and 100 in 1985. Despite gains seen during late spring 2009, sentiment was turbulent throughout the summer and fall. According to a RBC CASH Index press release in early November 2009, “higher gas prices, slumping retail sales, volatile stock markets and continuing joblessness resulted in the sharpest one-month drop in consumer sentiment since last autumn’s financial crisis.”
The Stakes are Higher
Although we are heading in the right direction to get out of the recession, consumers are still hesitant on how to spend their money. Ira Jersey, head of U.S. Interest Rate Strategy for RBC Capital Markets reports, “although we have pulled back from the abyss, consumer attitudes remain susceptible to negative news.” The ongoing hesitance partially stems from the belief that this recession has been tougher on Americans compared to other recessionary periods, like those that occurred in the early 1980s and early 1990s. The unemployed population is more vulnerable today than they were a generation ago for several reasons, including the decline in size and influence of unions, higher amounts of debt, and fewer traditional pensions to fall back on. For example, an MSNBC article titled Jobless (November 8, 2009) noted that during the recession of the early 80s, “the United Auto Workers persuaded the Big Three auto companies to pay up to 95 percent of the gap between laid-off worker’s unemployment benefits and what he or she made on the job.” Actions like these are no longer commonplace.
At the beginning of 2008 when the housing market started to crash and an increasing number of foreclosures were occurring, it became apparent to consumers that economic troubles were on the horizon. According to the January 2008 Country Report, GDP was forecasted to slow to 1.5% in 2008 but expected to recover to 2.6% in 2009 when “the worst of the housing downturn” had passed. This forecast was proven wrong, however, as in December 2008 a recession had been officially announced and in March 2009 the financial crisis and housing woes were still very much so in the headlines. As a result, the revised GDP forecast was a contraction of 3.1% in 2009. These events have influenced aspects of consumer’s lives, such as spending, saving, and unemployment. The devastating effects on these areas have put Americans into a negative social mood, further affecting the downturn in current consumer sentiment.
Consumer Spending and Saving
Reports compiled by the University of Michigan state that “there are several important factors blocking an increased pace of spending: uncertainty about future jobs and incomes as well as a desire to increase savings and decrease debt.” In fact, March 2009’s Country Report claims that, “the fearful mood among consumers is reflected in rising savings rates.” As of January 2009, the savings rate was 5.1% compared to only 0.3% during a similar period in 2008. Even so, the average amount of savings Americans have are much lower than what they were in previous decades and therefore, “over the past several years, consumers have begun to learn the advantages of postponing purchases in anticipation of lower prices.”
Unemployment
In September 2008, the unemployment rate was at 6.1% and has rapidly increased to 10.2% as of October 2009. Moreover, lay-offs, particularly in manufacturing, construction, and other service industries, have depressed consumer confidence which dropped 8.4 points to 50.9 on the RBC Jobs Index in November 2009 alone. It’s more than likely that the US will experience the “discouraged worker effect”, a consequence that occurs immediately after the recession in which discouraged Americans simply give up looking for work until the outlook is undoubtedly positive, as they did in the 1990s.
Consumer Confidence
Reported by The Conference Board, the consumer confidence index currently stands at 47.7, down from 53.4 in September and 100 in 1985. Despite gains seen during late spring 2009, sentiment was turbulent throughout the summer and fall. According to a RBC CASH Index press release in early November 2009, “higher gas prices, slumping retail sales, volatile stock markets and continuing joblessness resulted in the sharpest one-month drop in consumer sentiment since last autumn’s financial crisis.”
The Stakes are Higher
Although we are heading in the right direction to get out of the recession, consumers are still hesitant on how to spend their money. Ira Jersey, head of U.S. Interest Rate Strategy for RBC Capital Markets reports, “although we have pulled back from the abyss, consumer attitudes remain susceptible to negative news.” The ongoing hesitance partially stems from the belief that this recession has been tougher on Americans compared to other recessionary periods, like those that occurred in the early 1980s and early 1990s. The unemployed population is more vulnerable today than they were a generation ago for several reasons, including the decline in size and influence of unions, higher amounts of debt, and fewer traditional pensions to fall back on. For example, an MSNBC article titled Jobless (November 8, 2009) noted that during the recession of the early 80s, “the United Auto Workers persuaded the Big Three auto companies to pay up to 95 percent of the gap between laid-off worker’s unemployment benefits and what he or she made on the job.” Actions like these are no longer commonplace.
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