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Economic analysts are giddy about a recent spate of positive consumer-based indicators, on not only housing starts but consumer confidence, retail sales, auto sales and even unemployment. At the same time, in the same economy, the numbers run completely the other way when it comes to the corporate sector. Joe Weisenthal runs down the numbers. Some of them are sentiment-based, which I view with similar skepticism around a national election as I do with things like consumer confidence. But there are hard numbers around capital expenditures, and export growth, and corporate hiring plans, and even corporate profits, that have all turned negative.
So what’s going on? The export story can be tied to a global slowdown, with a recession in Europe, and stumbling growth in emerging markets. In this sense, the downside risks to the economy, from both Europe and China, are already being realized. But the dichotomy between happy consumers and grumbling businessman needs to be examined further. What’s going on here?
I think at least part of it could be attributed to the election: a lot of the consumer confidence spike was found to have come from Democrats, and I imagine the business doom and gloom could conceivably come from Republicans. But this doesn’t match the most recent trend in the election, where Mitt Romney has clawed back into the race.
There could also be more of a recognition among businesses than lower-information consumers about the pitfalls of the fiscal slope, although that isn’t seen on Wall Street, which basically doesn’t care about that risk. Certainly at least some businesses are hung up on the notion of uncertainty, though businesses consistently list weak sales as the reason for their lack of investment.
Finally, there’s the possibility of a housing wealth effect, though it seems far too early in the recovery cycle for that to have too much of an impact.
It will take until year’s end to see what fiscal policy will look like, as well as the makeup of the next government. So that should clear the air, and we’ll have a more consistent direction between consumers and businesses. But it looks like a toss-up right now.
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Interesting.
I think some of the bump in consumer spending could be crisis fatigue on the part of consumers. Those of us that still have jobs and some savings just can’t stay in fiscal crisis mode forever. There comes a point where we need a morale booster, such as a long put-off vacation, or need to make a long-delayed investment in something like a new car or fridge. Unlike the 1%, money is means to us, not an end in itself. And at some point we just have to go ahead and live, even if our bank accounts are smaller than we are comfortable with.
Bad times also create at least some kinds of consumer demand, particularly as the economic collapse starts to eat into the upper end of the middle class, where soem savings are still available. Madame–a professional at the top of her salary scale and within 10 years of retirement–was recently let go. So there are things to buy that we might not normally purchase: professional instruments, travel and fees for certification training, possibly even a new vehicle if she has to travel.
Moreover, those who have been poor and thus had the chance to observe other poor folk know that, when things stay bad for long enough, small luxuries can feel like necessities. When a house, college, retirement, or even health care are out of reach, stretching to the limit for a nice dinner out, a big TV, a high-end car stereo, or a no-expense-spared birthday party for a child can be the single most important improvement that people can make in their quality of life. Suburbanites like to sniff at such feckless extravagance–and they are right to, in a way. But when seen from the point of view that comes with hopeless poverty, such things make a lot more sense.
The bottom line, in my view, is that those of who are not in the 1% realise, at some point, that the economy is not going to get better and that there is never going to be a “good”, risk-free time to buy this or that important item. When we do, we are consumers. But it has nothing to do with “confidence.” Quite the contrary.
This economy has been bumping along at near bottom for four years now even while deficits exceed a trillion dollars every year. At some point the private sector will have completed their deleveraging from the housing crisis and they will start to spend. That will jump start the economy. The only brake on that is this fiscal cliff which could put us back into recession. Sadly, our leaders are in no hurry to fix it. In fact they seem to think austerity is the right thing to do. After all it worked so well in Europe? Maybe some businesses are a little worried about that too.
I am so fucking tired of this “uncertainty” meme. Why the hell does businesses’ uncomfortableness with “uncertainty” get any more attention [or sympathy] than the rest of us? Most of us are constantly “uncertain:” will we lose our job; will there be a major health care crisis in our family; will our home get foreclosed on; will we be able to pay for our kid(s)’ college; will we have ANY more for retirement.
You don’t see TPTB or the MOTU racing around trying to “fix things” to remove uncertainty from OUR lives!
I got a mailing from a financial planner the other day, lauding Simpson-Bowles, plans to deal with the AMT, and other elements. When I shot back a withering reply, he came back with the “businesses need certainty” crap.
One thing that really chafes me is that tax laws were fairly “certain” until BUSINESS ordered their armies of lobbyists to invade Capitol Hill and add measures like carried interest, oil depletion allowance, etc. If these toads want “certainty,” tell them to STFU and leave the tax code alone.
I’m just sick of the whining crap put forth by these “bold capitalists” and “captains of industry.” What wusses!
I find the “certainty” stuff annoying as well.
None of us has certainty.
And, if I can grow my business’s profits by spending and hiring, do you really mean to tell me I would refrain from doing that because I fear a new regulation or some other silly thing?
Wouldn’t that be cutting off my spending to spite my pocket?
Carroll Quigley, certainty in financial markets and Bill Clinton:
https://www.google.com/search?q=Carroll+Quigley+You+Tube&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a
I think bigger game is afoot.
If Obama wins a squeaker, the MOTU are going to use the unrest of a “stolen” (projection, much?) election to bring about the consequences David Siegel promised his employees.
They will loot what’s left of the middle class and blame the imposter in the White House.
And sadly, Obama will play his assigned role in the farce.
Actually the reason that people don’t grow their businesses is the certainty that the taxes they pay on the money they withdraw from their business is so low that the marginal utility of hiring more people or otherwise investing in their business is virtually eradicated. Raise taxes on businesses and high earning individuals so that the marginal utility of investment is greater than that in taking profits.