Consumer Optimism Makes Recession Unlikley

Wednesday, 29 Feb 2012 09:03 AM

By Michael Carr

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Recent consumer confidence surveys show that the average person feels better about the economy now than they did four years ago. Higher gasoline prices usually dampen confidence, but this time they are being offset by gains in the job market and a bull market in stocks.

Gasoline prices have risen sharply and are likely to continue rising for at least the next several weeks.

Federal regulations require refineries to deliver a more expensive, less polluting summer formulation of unleaded gas starting March 1, and that could add another 10 cents to the price at the pump.

Better employment prospects and retirement accounts that grow with the stock market seem to have offset the pain of higher gasoline prices and that is god news for the economy and the president.

Recessions generally start when confidence is declining. It rebounds sharply at the end of the recession. This is interesting because economists don’t know when a recession starts or stops until months after the economy turns.

Consumer spending accounts for about two-thirds of the economy and consumers who feel good about the future spend more. This makes it unlikely that the U.S. economy will contract over the next six months. The sharp bounce seen in February’s data is usually seen as economic growth accelerates.

Political scientists have found that consumer confidence is also one of the best predictors of a presidential election. Incumbents tend to win when this indicator is improving and that is something that points towards an Obama victory in November.



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