October 25, 2011

Confidence in Economy Sinks to 2009 Lows

Jamie Dimon calls for U.S. Marshall Plan; bankers cite lack of jobs as key problem

Consumer confidence plummeted in October, falling to a level not seen since the depths of the financial crisis-induced recession in 2009. The Conference Board’s Consumer Confidence Index fell short of economists’ consensus estimates, as did the University of Michigan Consumer Sentiment survey released two weeks ago.

In its announcement Tuesday, Conference Board economist Lynn Franco said "consumer expectations, which had improved in September, gave back all of the gain and then some, as concerns about business conditions, the labor market and income prospects increased.”

Analyst Doug Short of Advisor Perspectives, writing on his blog, notes that the pervasive low confidence following the official end of the recession in 2009 is similar to, though more severe than, two previous recoveries, all three of which were considered “jobless recoveries.” Short reasons that consumer confidence is a proxy for high unemployment.

This conclusion is shared by the nation’s top bankers. In interviews published in Tuesday’s Atlanta Journal-Constitution (but prior to the release of confidence survey data), Wells Fargo CEO John Stumpf said the lack of confidence was “the No. 1 challenge today in America” and his counterpart at Chase, Jamie Dimon, said the reason for the malaise is that “it’s been a long time of 9% unemployment.” Dimon called for a Marshall Plan to get Americans back to work and said fixing the U.S. tax code was the critical first step.

Another prominent banker, Federal Reserve Governor Daniel Tarullo, in a speech at the World Leaders Forum last week, indicated that long-term trends do not bode well for those seeking employment opportunities.

“Two tendencies in particular suggest that the U.S. labor market has lost some of the dynamism that had long contributed to its resilience.

"First, it is apparent that job reallocation–that is, the sum of the jobs created at some businesses and lost in others–has been in secular decline since the late 1990s.… Second, the amount of employee movement across jobs has fallen over time. Specifically, the rate at which workers move from one firm to another has declined. So has the rate at which workers quit jobs, an indication of the degree to which they believe there are better jobs available for them. In what may be a related trend, geographic mobility across counties and states has decreased.”

Analyst Short notes an extraordinarily close correlation between the Conference Board confidence index and the National Federation of Independent Business Small Business Economic Trends survey, suggesting that jobs and consumer confidence won’t be forthcoming until small business owners ring up more sales at their cash registers. Unfortunately, there’s a circularity problem here: Consumers are not likely to patronize their local retail establishments until they feel confident, or have jobs.

Page 2 of 2
Single page view Reprints Discuss this story
This is where the comments go.