Worried Households in the United States, Europe and Japan

August 30, 2011

The Conference Board index of U.S. consumer confidence plunged 14.7 points in August to a reading of 44.5.  It’s average score was 61.6 in the second quarter and 66.3 in the first quarter.  Even those levels were quite weak compared to pre-recession norms.  The last reading as low as 44.5 occurred in April 2009 when the U.S. economy was still in recession.

Worried families do not make good spenders.  Real personal consumption advanced only 0.4% at an annualized rate last quarter and by 1.5% between 2Q10 and 2Q11, down from 3.3% in the four quarters to 2Q10.  The Johnson-Redbook gauge of chain store sales for the four weeks to August 27 was only 0.1% greater than sales in July, and the ICSC-Goldman Sachs measure indicated a recovery of only 0.1% in chain store sales last week after four drops in a row.

An ongoing U.S. housing market constitutes one source of the squeeze on households.  House prices stabilized last quarter according to the Case Schiller index, which was 4.5% below its year earlier level in both May and June.  An extremely volatile and net 10% drop of the S&P 500 index since July 21 doesn’t help.  But the biggest concern is the battered labor market.  July’s level of employment was 4.983 million less than five years before and 732K lower than in July 2011.  Jobs rose just 72K per month in the three months to July 2011, identical to a year earlier.  The table below presents the monthly pace of U.S. job growth in thousands of workers added or subtracted over sequential three-month periods since the start of the economic recovery.

‘000s per mth Aug-Oct Nov-Jan Feb-April May-July
2009/10 -229 -75 145 72
2010/11 28 104 215 72


Twenty-seven months of data have been reported since the unemployment went above 9.0%.  Although such exceeded 9.9% in just a single month, the average for all 27 months was 9.5%, and the level at the end of the period was 9.1%.  The jobless rate also averaged 9.5% over the 27 months to January 1984, the rate surpassed 9.9% in ten of those months but had fallen to 8.0% at the end of the string.  The trajectory now is very different this time from the parabolic distribution in the early 1980s.  By early 1984, monetary and fiscal policy were each supportive, and victories over inflation and in the cold war were generating good feelings in America.  This time around, fiscal policy is set to tighten sharply, monetary policy is awaiting confirmation of recession before lending fresh support, and America is polarized politically with problems not even imagined 27 years ago.  The tunnel has no light as far as the eye can see.

In Europe, overall economic sentiment sank 4.7 points to 98.3 in August including drops of 5.7 points in Germany and 5.6 points in Britain.  Consumer confidence in the euro area slumped to a reading of minus 16.5, weakest since June 2010 and down from negative 11.2 in July and minus 9.7 in June.  The monthly survey of U.K. retailers compiled by the Confederation of British Industries produced a reading of minus 14 in April, nine points worse than July’s score and a dramatic 32-point deterioration from +18 in May.  The more German voters complain about Greece and other peripheral economies, the more Germany’s economy gets sucked into the regional economies doldrums.  And as the dose of British fiscal austerity intensifies, the more the U.K. economy struggles to maintain positive growth.

Japanese sentiment is recovering from a colossal hit early this year from the earthquake-tsunami-nuclear accident.  This three-pronged shock struck an economy that already had slipped into recession.  Real GDP contracted at annualized rates of 2.5% in the final quarter 0f 2010, 3.6% in 1Q11, and 1.3% in 2Q11.  The level of Japanese consumer confidence in July was up from a second-quarter mean of 34.8, but it remained below the 1Q mean of 40.0 and the mid-2010 high of 43.5.  April 2006 was the last month to see a reading of 50.0 or better.  Small business sentiment, according to today’s released Shoko Chukin index, showed greater pessimism in August with a reading of 46.4 after 47.1 in June.  The labor market remains severe.  July’s jobless rate posted a second consecutive 0.1 percentage point rise, and employment was 0.3% lower than in July 2010. 

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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