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Fallout: The Financial Crisis

Why is consumer confidence up?

Amy Scott May 26, 2009
Fallout: The Financial Crisis

Why is consumer confidence up?

Amy Scott May 26, 2009


Kai Ryssdal: I suppose today’s news of a jump in consumer confidence is a tribute to the resilience of the American consumer, of their ability to find light in the economic darkness. It is one of those more squishy economic indicators. How’re you feeling is the basic question. And based on answers to the most recent monthly survey, consumers are feeling better about things that they have in a while. Marketplace’s Amy Scott is here to help us understand why that might be. Hey Amy.

AMY SCOTT: Hey, Kai.

Ryssdal: I have to ask you and let’s just throw formalities out the window here. What is going on out there that people are feeling so much better?

SCOTT: Well, that’s a good question. I mean, General Motors is on the verge of bankruptcy. We heard today that home prices fell another 18-plus percent in March. The unemployment rate appears to be on its way closer to 10 percent. But, Kai, just to put things in perspective, in February the Consumer Confidence Index hit an all time low as people thought the economy was basically falling off a cliff. So today’s reading is a lot better, but it’s still a pretty pessimistic outlook in the scheme of things.

Ryssdal: But the economy, as we have talked about, is getting bad less quickly, right? It’s less worse.

SCOTT: That’s right, I mean the rate of job losses appears to be slowing slightly. Of course, people have been watching the stock market rally. And those of in the media have been talking a lot about things getting less bad. I talked today to economist Joshua Shapiro at MFR, and he says consumers are getting the message.

JOSHUA SHAPIRO: People read newspapers. They listen to politicians and officials, and everybody has been on the same page, on the sidelines, sorta of cheerleading here. And I think people are looking for reasons to not be quite as depressed as they were, and they’re latching on to this and saying, OK, things aren’t that bad.

SCOTT: As Shapiro put it we’ve moved from a sort of end of the world confidence level to what you might see in a more typical economic slump. Shapiro, by the way, though, thinks that we have a long way to go before real optimism is justified.

Ryssdal: But wait a second, because we will take fake optimism, right? Because part of this is if we feel better than we will spend money, which will make us feel better because there will be signs of economic recovery, right?

SCOTT: Well, that’s the idea. And I did speak to one consumer-spending expert today who says there’s a lot of pent-up demand out there. For a lot of the 90-plus percent of people who still have jobs — they may have more money in their pockets because they’ve been saving more, they’re not spending as much on energy. But we haven’t really seen a pickup in consumer spending yet. We did our own very unscientific poll here in New York. My colleague Rafael Cohen talked with folks at Grand Central Station and found that people aren’t really ready to go shopping.

Luke Nathan and Andrew Feinberg: No, not really. I think that it’s probably going to get worse before it gets better. I’m being very conservative with my spending and I’m being very conservative with how I’m looking at business.

Rafael Cohen: In your own life, do you feel more confident about buying things?

Diane Latinsky: Not yet, no.

Cohen: What’s it going to take for that to change, you think?

Latinsky: About another six months.

SCOTT: That was Luke Nathan, Andrew Feinberg and Diane Latinsky. And Kai, analysts say the correlation between the Consumer Confidence Index and actual consumer spending is pretty iffy. So even a little bit of good news today is by no means a predictor.

Ryssdal: And we’ll have track those people down in six months and figure out what they think, right? Especially that last one.

SCOTT: That’s right. See if she went shopping.

Ryssdal: That’s right. Amy Scott in New York. Thanks, Amy.

SCOTT: All right, thanks a lot.

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