September 20, 2005

Tying Together the Consumer Confidence Drop and Focus-Group Follies

Filed under: Economy,MSM Biz/Other Bias,Taxes & Government — Tom @ 4:51 pm

The Mainstream Business Press’s attempt to “talk down the economy” is starting to work.

Econbrowser has the grim news on consumer confidence (UofM site requires e-mail addy and name).

I meant to post this comment at his site, but HTML formatting isn’t working doesn’t work there in draft mode (so I thought it wouldn’t work for me when posted–I was wrong, oh well), so here it is:

I attended a Luntz focus group last week with about 30 people split evenly among Bush and Kerry supporters. About 75% of the people thought the economy is in lousy shape, despite the fact that about 60% said that their financial situation now is better than it was a year ago.

During the meeting, the moderator distributed a handout containing 15 facts about the economy. Most didn’t know them, many, especially the Kerry supporters, didn’t believe them and continued to dispute them even after the moderator reminded the audience that they were all absolutely true.

I would have worded a few of them differently, but here they are:

  1. Over 3.5 million new jobs have been created in the past two years.
  2. The unemployment rate is at 4.9%, the lowest it’s been since the 9/11 attacks.
  3. Retail sales are up 10.3% this year–and they’re up 1.8% in July alone.
  4. In the last year, job growth is up in 48 out of 50 states and the District of Columbia.
  5. Total wage income is up about $75 billion this year over projections.
  6. The Congressional Budget Office estimates that the 2005 budget deficit will be $331 billion–a 20% reduction from last year’s deficit.
  7. Existing home sales increased 4.6% in the second quarter of 2005, the highest level ever.
  8. July was the 26th month in a row of manufacturing growth.
  9. The US Treasury reported that it will have the lowest third quarter borrowing since 2000.
  10. The Conference Board’s index of leading economic indicators rose 0.9% to 137.7 in June, suggesting the economy will continue to expand in coming months.
  11. Average weekly salaries increased 5.7% between the fourth quarter of 2003 and the fourth quarter of 2004.
  12. More Americans are working today than ever in our nation’s history.
  13. According to Commerce Department Statistics, the US economy grew at a solid 3.4% annual rate in the second quarter, the 9th straight quarter in which GDP increased at a rate about 3%.
  14. The consumer price index from the Labor Department indicates inflation is well contained.
  15. Total payroll employment rose by 207,000 in July 2005.

The fact that most of these relatively well-informed people didn’t know many or most of these facts shows that this is a media-driven confidence drop. After three full years of ignoring and downplaying the usually good news about jobs, the recovery, GDP growth, low unemployment rate, and rise of manufacturing, it only takes a modest amount of legitimately bad news (oil spike, since negated; two impending large airline bankruptcies; the troubles at GM, Ford, Delphi, and Visteon; and the continued and misplaced gloom about a steep housing price downturn) to turn people gloomy.

This is about the business press’s apparent determination to talk down the economy, and for the moment, it is beginning to work.

But…. the good news is that the Fed is probably done raising rates, the President’s Katrina rebuilding initiatives will pump life into the Gulf Coast states, and gas prices are down to just below pre-Katrina levels. All of these, plus a probable upward revision of the second quarter’s reported GDP, will probably serve to reduce the recession risk, and perhaps give a boost to the consumer confidence the business press has been working so hard to erode.

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BizzyBlog blasts from the past:

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UPDATE: Econbrowser’s graph does show a significant dip, but the absolute level of consumer confidence is much higher than the levels that presaged previous recessions, meaning that the confidence situation in and of itself might not be enough to induce a recession (I had to eyeball the graph and did not go to source data):

August 2005–76.9; 1990–about 65; 1982–about 62; 1979–about 52

But a few more months of ignoring reality and concentrating on gloom by the business press, and who knows?

UPDATE 2: This AP story gives the impression that more rate hikes are coming. If true, I think that’s a big, big mistake.

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