Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
There is a proven correlation between consumer confidence and consumer spending. The better we feel about our present and future prospects, the more we spend. That’s been true for 75 percent of reporting periods during the past 25 years, according to a recent Deutsche Bank report.
But that hasn’t been the case lately.
The most recent reports put consumer confidence at the lowest level in 31 years. Yet consumer spending is strong. U.S. chain store sales were up 5.1 percent in September and 3.4 percent in October. The Commerce Department reported total consumption in the U.S. rose 21.4 percent last quarter – the fastest rate so far this year. New vehicle sales are on pace to top 13 million in 2011.
What’s going on here?
I blame Washington for our glumness. While Americans are seldom happy with their government, confidence in our leaders is at an all-time low. According to the most recent New York Times/CBS News Poll, Congressional approval ratings are the lowest on record with only 9 percent of Americans approving of its performance.
I also blame Europe. We’ve been hammered with news about how bad things are in Greece, Portugal, Spain and Italy — and the possible dire consequences for us if the Europeans can’t get this sorted out. We’re also irritated to discover that this crisis stems from the need to bail out a country where people retire in their 50s after working 30-hour weeks.
So why are we spending? Pent-up demand. In 2008 the rug was pulled out from under the American economy. Housing prices plummeted, the stock market dropped nearly 50 percent, and the unemployment rate more than doubled. Americans, understandably terrified by these developments, began spending less, saving more and paying off debt.
But you can only patch the roof so many times before you have to buy a new one. The same is true for cars, computers, cell phones, washing machines — most everything we own. We’ve hit that point as a nation. After making do for the past three years, Americans are slowly loosening their purse strings and starting to spend significant sums to replace and/or upgrade key possessions — whether they want to or not.
Despite gloomy confidence numbers today, there’s light at the end of the tunnel. The conversation around tax and entitlement reform is well under way here in the U.S., and the EU seems to understand it needs to once and for all shore up its own financial system. If we can get a couple of these major headwinds knocked out, consumer confidence will undoubtedly come roaring back.
What will it take to boost your consumer confidence?
– By Wes Moss, for Atlanta Bargain Hunter