Saturday, March 28, 2009

Mired in Recession, But U.S. Consumers a Bit More Positive

Wall Street Journal - Economy Raises Tentative Hopes a Trough is Finally in Sight
USA Today - Poll: Outlook Improving About Economy

U.S. consumer views of the economy have become more optimistic in the past few weeks as several economic indicators have brightened. 29% of respondents in a recent Gallup poll say the economy is improving; that is nearly double the percentage who said that just weeks ago. Nevertheless, nearly two-thirds of respondents felt the economy was getting worse and only 9% would classify the U.S. economy as "good".

Increased consumer optimism has blossomed on the heels of several positive (even if temporary) economic indicators. The Dow Jones Industrial Average rose for the third week in a row and has recouped 20% since it hit bottom a few months ago. Consumer spending increased by a small amount in February, and new housing has stemmed its decline.

The current recession started in December 2007, and Americans' increased optimism comes amid the 17th straight month of recession. Analysts are attempting to predict when the trough of the current downturn will occur, and they recently discovered a bit of good news: in past recessions, unemployment applications reached their peak several months before the trough of the recession. U.S. unemployment applications peaked at 650,000 in mid-March. Although that fact gives reason for optimism, overall U.S. unemployment numbers continue to climb upward. The current indicator of 8.1% is the highest in the past 25 years, and many economists predict it will continue to rise even if the U.S. economy begins growing again.

U.S. consumers continue to exhibit high levels of anxiety about their economic prospects. The personal savings rate was 4.2% in February, whereas the savings rate prior to the recession was near zero. Their anxiety appears justified: average after-tax income fell in February, as it had in several prior months.

1) How much does consumer confidence influence tangible economic and financial recovery?
2) Is the trough in the current recession near, or are the current indicators merely temporary ledges before further falls?

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