Confidence in the Economy is Tanking Again

Economic reports have been disappointing in general over the last several months. Not every report, mind you, but the overall trend has been troubling, to the point that more and more forecasters are not ruling out that the US economy may be slipping into a new recession.

There are several measures of US consumer confidence that analysts like me follow every month. We keep up with these indicators because consumer spending makes up almost 70% of Gross National Product – that is, the economy. These include the Consumer Confidence Index, the University of Michigan Consumer Sentiment Index, retail sales, consumer credit, etc. These reports are regularly covered in the media.

But there is another indicator I watch that I think is important. It is Gallup’s US Economic Confidence Index. Unlike the Consumer Confidence Index, which measures what consumers are thinking in general, Gallup’s Economic Confidence Index hones in on what consumers are thinking about the future of the economy only.

Let me fast-forward to Gallup’s latest chart, and I will elaborate afterward. This is not pretty.

Gallup’s US Economic Confidence Index averaged -27 for the week ending July 15, down four points from -23 in each of the prior two weeks. This extends a gradual decline in confidence that has been underway since late May, when the Index was at a four-year best of -16. The Index was nearly this low a month ago at -26 in mid-June and now stands at the lowest weekly average since early January of this year.

So what does this mean going forward? I wish I could say for certain. What it does tell us without question is that consumer sentiment is deteriorating significantly. If consumer confidence continues to fall, that almost assures that upcoming reports on the economy will be disappointing in the months just ahead.

Does it mean that we’re headed into a new recession? Not necessarily, but we can’t rule it out either. What it tells us is that US consumers were feeling better about the economic recovery from late last year until this summer. But since late May, that confidence has fallen rather sharply.

As a result of this and other indicators, most economists are once again revising their growth forecasts lower for the balance of this year. Previous estimates of 2+% GDP growth for 2012 are now being cut to 1-1.5% in many cases.

It remains to be seen if there will be any big positive or negative surprises for the economy between now and the election. Plus, who knows what will be the next big development in the European debt crisis in the months ahead. Likewise, we still don’t know if the Fed has another QE card up its sleeve.

It also remains to be seen if President Obama has an “October Surprise” in the works for us. Falling consumer confidence has to be troubling for Obama and the Dems. It should be a very interesting time between now and the elections in early November. I’ll keep you posted.

Before I sign off today, let me encourage you to read my E-Letter next Tuesday. Barring any surprises, I will opine on the record high number of Americans who are now on disability, food stamps and unemployment benefits. In June alone, a record 85,000 people signed up for disability benefits. Go to www.forecastsandtrends.com next Tuesday afternoon (after 5:00 p.m. Central Time) to read it.

I will also speak out for the first time on President Obama’s worst gaffe so far, his recent controversial rant: “If you’ve got a business — you didn’t build that. Somebody else [ie – the government] made that happen.” You can bet I’ll have a lot of fun with that one!

Have a great weekend everyone.

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