Washington, MD (PressExposure) March 28, 2009 -- The American consumer cut back so much during the last quarter of 2008, that two recent reports showing that a slight leveling off had occurred in February and March caused many supposed economic pundits to suggest that a bottoming out had occurred and that it was possible to see a light at the end of the tunnel.
The cause for such jubilation?
The Commerce Department announced a rise of 0.2% in consumer spending in February, and the University of Michigan's index of consumer confidence edged up slightly in March, whilst remaining at near historic lows.
Richard T. Curtin, who has run the University of Michigan survey for decades, said in a just published report, "The good news is that the free fall in confidence has ended. The bad news is that consumers expect their financial situation to remain dismal for the rest of 2009".
Not only were the increases miniscule, but there were obvious reasons for them. Spending was higher due to higher gasoline prices, and the fact that personal income fell by 0.2% in February got scant attention, even though it most likely means that consumers will have to cut back even further on purchases.
House prices are still falling, the stock market is way down for the year and unemployment continues to rise, but there are a number of economists who believe that consumers who are still delaying the purchase of major items such as a house, a car, or new appliances will soon be forced into buying them, which will in turn create a bounce in the broader economy.
It is totally unclear to me however why the consumer will suddenly feel that he must buy a new car, a new house or a new appliance etc. and I would strongly agree with Howard Davidowitz, who is the chairman of the retail consultancy Davidowitz & Associates who said, "When you've got exploding job losses like we have, how would that lead to any improvement in consumer spending? If you don't have jobs, you cannot possibly have a change in psychology".
Perhaps ironically, if the consumer's confidence and appetite do grow, it could well create new problems because the purchasing of big-ticket items in large numbers could create a snap-back in gross domestic product, followed by another recession because of business conditions that are still extremely weak, companies that are still not investing, and weakness in the rest of the world's economies.