Confidence, consumer style

It may seem strange but today’s report that consumer confidence hit an all-time low, as measured by the Conference Board, is actually a strong sign that the economy is recovering. How could I say such a preposterous thing?

The answer is that generally consumers respond very slowly to economic news. That’s a broad-brush way of saying that most consumers respond to economic news rather than anticipate it. That means that for consumer confidence to have finally hit an all-time low in the midst of two years worth of bad economic news is likely a sign that things are on their way back up. At this point in the “cycle” most major businesses have announced and begun their layoffs and restructuring. Regulators and politicians have taken dramatic steps to staunch the bleeding. And consumers have finally responded. In other words, consumers are a lagging indicator.

Now that businesses have begun the process of responding to the economic conditions, their choices will begin to have an effect on the economy. That will ultimately result in a more efficient allocation of capital and eventual economic growth. In turn, that will likely be followed by additional hiring then additional money in consumer pockets and then to increased consumer confidence. By then we will be at least a year and a half into an economic recovery before consumers even notice.

The proof of my opinion obviously lies many months into the future. So let this posting serve as me planting a flag and let’s revisit this posting 18 months from now.

*****

I hope that each of you is having a wonderful Holy Day Season.

May the mirth be with you! (yes, that was cheesy of me)

Jason