Consumer Unconfidence

February 13, 2004

The University of Michigan's preliminary report on consumer confidence was released this morning. The numbers were unexpectedly poor. The implication of such a steep drop, particularly the drop in consumer expectations to 88.4 from 100.1, is that consumers will spend less. Logically, this makes sense, since if a person is not confident about his job, or future prospects, that person is not likely to spend money on big-ticket items. Most rational people aren't going off to but a plasma-screen TV if they're worried about having a job at the end of the month.

This lack of confidence could potentially spell big trouble for the President's economic policy. President Bush has fervently pushed for widespread tax cuts, claiming that the money saved by lower taxes will promptly be spent on consumer goods, thereby jump-starting the economy. Whether you believe this theory or not is typically predicated on which side of the aisle your support falls. However, if the falling consumer sentiment numbers imply a drop in spending, that drop will cause the nascent economic recovery to stall.