According to the latest Royal Bank's Capital Markets CASH (Consumer Attitudes and Spending by Household) Index, consumer confidence dropped significantly in just one month, down from August's 89.3 level to 71.1 for September 2007, the lowest level since May 2006. This is seen in the retail numbers from August, which was only about half the amount that economists expected.
Why? Consumers no longer believe in George W. Bush's "booming" economy. "Americans have a dim view of their current financial situation and an even bleaker view of their future prospects," said T.J. Marta, economic and fixed income strategist for RBC Capital Markets.
Those Marxist-Leninists over at Forbes report on why there is such a large a loss of economic faith: "The value of their homes is declining for the first time in over a decade. They're shelling out more for meals and gas. Also, they're having a harder time finding mortgages and jobs."
Under those conditions, is it any wonder that American consumers are cutting back? But then, thanks to the lenders who created this mess in the first place, understandably tighter credit standards are making it more expensive for consumers to buy. In a consumer-driven economy, with about two-thirds of the national economic activity produced by consumers, that is the kiss of death to the Goose which lays the Golden Eggs!
That understanding of economic reality may well be starting to sink into those pie-in-the-sky investors who rashly bought into the market toward the end of the last week over GM (now facing a damaging strike from angry UAW members) and McDonald's flimsy "good news" – a "promise" of higher dividends. Columnist Mark Stein puts it thusly: "Economists who insisted that there was no link between consumer confidence and consumer spending always seemed like people whistling past the graveyard." There is no hiding from reality anymore. The Dawn of the Economic Dead is now upon us, and the zombies are starving.
With formerly-loyal Republican money-mismanager demi-god Alan Greenspan blasting Bush over his ill-considered economic policies – "a major mistake" that Greenspan did nothing to prevent or assuage – in what is the consumer to trust except caution?
When the campaign to promote the economic well-being of the few becomes too expensive, the many vote with their feet – away from spending. For when the rainy days arrive, there won't be room at the mansion for the many – and it's getting cloudy out there.Powered by Sidelines