Consumer Confidence Slides Again

Here’s the news release from the Conference Board: Consumer Confidence Index

No real news here. Consumers are taking a huge hit as businesses cut jobs and house prices continue to fall. So it cannot be a surprise to see surveys of confidence reflecting doom and gloom.

The longer this continues the worse off we all will be. Until consumers begin to spend the economy will continue to shrink.

This shrinkage of the private sector is the reason the economy is in decline and provides the impetus for the huge stimulus package being discussed by the Obama team. Given that the private sector is in turmoil it is logical to expand the public sector as an offset. The discussions are all around the extent of expansion. The arithmetic is quite straightforward: a decline of about 1% in private spending can be offset by about $100 billion in government spending. Assuming that we will need to do this during the next two years [consumer confidence gives no indication of a quick recovery of the private sector], and that consumer spending has fallen by about 4%, then a total stimulus of $800 billion seems appropriate. Of course this only gets us back to zero growth, so a larger stimulus may be more appropriate.

In any case the next two years will see huge government deficits as we try to undo the enormous damage accumulated during the past few years.