After hitting a 16-month high of 56.5 in January, the CB index of consumer confidence slumped below the 50.0 mark in February, indicating that consumers grew pessimistic with their economic outlook. Components of the indicator showed that the index for present conditions dipped from 25.2 to 19.4 – its lowest level since 1983! Furthermore, the gauge for economic expectations also dropped to an all-time low of 63.8.
Well, the average Joe could definitely use a boost in morale… but count on the current labor conditions to do the exact opposite.
Among the 5,000 households who were surveyed by the Conference Board, the percentage of people who said that employment is ample dropped to 3.6% from 4.4% while the number of people who said that jobs are scarce rose to 47.7% from 46.5%. The share of people seeing an increase in their income for the next six months also declined from 11% to 9.5%. Moreover, the section of people who are expecting more employment likewise dropped from 15.8% to 13.4%.
Some economists predict that the unemployment rate will average 9.8% this 2010 despite already improving to 9.7% in January. Meanwhile, the country’s weekly initial jobless claims continue to pile up with 466,000 more Americans seen to have filed unemployment benefits for the week ending February 20. This increase in claims all the more suggests that the labor conditions in the US is not picking up at all.
With a hoard of Joes still out of work, spending is then expected to be muted. Why would people even think about buying that new iPad when their financial stability is on the line?
To make matters worse, wage growth is barely keeping up with the rising price levels. In fact, January’s personal spending report revealed only a 0.2% uptick, slightly lower than the 0.3% increase initially expected. The pace of growth was also significantly slower from the 0.7% increase seen in December. In contrast, personal saving hit 4.8% during the same period, the highest since June of last year.
With the labor situation still unstable and confidence falling, the prospect of a benchmark rate hike remains dim. Remember last week, when the Fed shocked the markets with a discount rate hike? As I said before, the markets took this as a sign that the Fed might start raising rates sooner than later. Well if you weren’t paying attention, Fed officials said that we shouldn’t look too much into this, and that the move wasn’t indicative of future rate hikes.
Judging from the weaknesses in the consumer sector, it might be prudent for the Fed to keep rates at current levels. A sudden increase in rate hikes may stall recovery as it could lead to a slowdown in growth. Given these recent developments, I am more inclined to believe that the Fed will stick with their “wait and see” approach.
If the economy fails to show signs of improvement, could this be an omen for things to come? Could we be headed for a *gulp* double-dip recession? I hope not.