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How Do You Feel?
Well, how do you feel? I'm interested, the publisher of this paper is interested, and believe it or not, so are the President of the United States and the Federal Reserve Board Chairman! You see, in our society, simply put, the consumer rules. I've mentioned it before in this space, and it is certainly worth mentioning again. Two-thirds of the Gross Domestic Product in this country is accounted for by nothing more than consumer spending. That's right; Main Street rules!
A year ago, when everyone was telling us that our economy was "too hot"-- and don't you wish you could go back to that "too hot" economy-I was telling seminar audiences that if you really want to cool the economy, stay out of the malls for a couple of weeks. If you want to cause a recession, stay out of the malls for a couple of months. People smiled but they got the point. And the point was correct. Consumer spending in this country is Number One. Therefore, in trying to gauge the overall health of the entire economy, gauging "how you feel" is very important. If you are feeling glum and pessimistic, you are more likely to sit on your hands and stay out of the malls than if you are feeling cheerful and positive. It is that simple and straightforward.
Recently, it appears, at least by national surveys, that the consumer is hanging in there pretty well and in fact is improving. A little over a week ago the Conference Board came out with its numbers for the current period and found that while current expectations remain the same, "future" expectations, that is, six months down the line, have really improved. That's a very encouraging sign. At the end of the month the University of Michigan issued its report on its Consumer Sentiment Index, and it too was stronger than expected and moving up.
What has surprised the so-called experts is that "we the people" have not fallen into a doom and gloom mood despite the stock market's poor performance.
Recently, the Federal Reserve Bank of Philadelphia President, Anthony Santomero, said the Fed's recent interest rate cut was aimed at restoring overall demand growth in the economy to a pace consistent with the economy's potential. Santomero said, "I believe if a decline in confidence is viewed to having a substantial dampening effect on overall real demand growth, that monetary policy can and should respond with the aim of restoring overall demand growth to a pace consistent with potential supply growth." He noted that the Fed's cutting of interest rates so far this year was in response to various signs of demand weakening, "including the deterioration of confidence and that it was more severe than the underlying data seemed to indicate. The Fed remains vigilant by continuing to monitor the behavior of the real economy." He concluded by saying that the key issue now for the economy is the extent to which the recent decline in consumer confidence will significantly effect the economy in the months ahead.
Given Mr. Santomero's statements, he will undoubtedly be cheered by these two new reports indicating that you are bouncing back, that you are feeling better, that you are more encouraged. Because, as we've said before, you are very important. * * *
The big new report that everyone is waiting to get their hands on will come near the end of April, on the 27th, to be specific, when the government will give its first report on the Gross Domestic Product for the just ended first quarter. You remember the gloom and doomers were trying to tell us that the fourth quarter would slide into negative territory, but it did not. The final number, up 1%, may not be dynamic, but it is a plus not a minus. Now, of course, the emphasis shifts to the first quarter. Again, the gloom and doomers are beating the drums that we will show negative growth. My guess is that, again, it won't be much, maybe even less than 1%, but it probably won't be in negative territory. All of this is important because by definition a recession does not occur until you have two consecutive quarters of declining Gross Domestic Product. So, for all those people who want to try to scare you and tell you we're in a recession, in fact, it is impossible to know that right now. You'd need two consecutive quarters to know it, therefore, the earliest possible time that a recession could actually, factually, be designated, would be sometime in late July --if the second and first quarters were negative.
(Tom Butenhoff is a First Vice President with J. E. Liss and Company, Inc.
in Milwaukee. The views are his, and not necessarily those of Liss
Financial Services or the Job Connection/Hiring
Network.)