Tuesday, May 26, 2009

Consumer Confidence Jump May Show that Ignorance is Bliss

Bloomberg reported this morning that "Confidence among U.S. consumers jumped in May by the most in six years, fueling speculation the economy will recover later this year. The Conference Board’s sentiment index surged to 54.9, higher than forecast, according to figures from the New York- based research group today."

To say that this "confidence" is optimistic is to put it light. Consumers do know that over the last several months many things have taken place on the political and economic front. There is this hope among these people that "doing something" has to be a good thing.

What is interesting is that Wall Street seems to be thinking in similar terms to consumers and may be drinking from the same drink, Bloomberg notes "Stocks climbed for the first time in five days on speculation a lifting of the gloom surrounding the worst recession in half a century may spur consumers, who account for 70 percent of the economy, to spend. Still, rising unemployment and falling real estate values underscore that it will take time to establish a sustained rebound. " I think the key word in this paragraph is "speculation."

I believe that this optimism is based only on perceptions and not substance. Once the American people begin to see the policies that are going into effect, they will likely lose a great deal of that confidence.

For example, when the $1.4 trillion dollars that was pumped into the economy on one day earlier this year to help satisfy some of our expenses, we will begin to see a significant jump in prices (which never makes consumers feel confident), a likely decline in economic activity due to the instability that will create, and have a punishing effect on job creation. What will also hurt consumer confidence is the direct attack the Obama Administration is waging on employment, by focusing on raising taxes on job creators.

Obama also wants to double tax businesses with operations both here and in other countries, which will certainly chase capital to other parts of the world. The vast majority of the jobs created in this country are from those who make over $250,000 a year, yet, according the National Taxpayers Union, those who make $153,542 or more already pay more than 60 percent of the total tax bill. Thinking that this is a viable source for more money will only translate for greater economic difficulties.

When the fact that the US has increased its debt annually over the next ten years with the Obama budget and when the additional strain that will bring on the economy finally sinks in, "confidence" is not the word that comes to mind.

The biggest concern that even the most casual observer of our economy and politics should have, is the apparent huge lack of understanding of the consequences of public policy by the American people (including the geniuses on Wall Street), when it comes to the choices being made by the Obama Administration. Optimism is one thing, but the upswing in consumer confidence seen this recently is pure fantasy.

Kevin Price is Host of the Price of Business, the longest running show on AM 650 (M-F at 11 am) in Houston, Texas and on AOL Radio. Eric Bolling of Fox News and Fox Business says that Price’s Blog “is very influential and moves the blogosphere.” Steve Moore of the Wall Street Journal calls Price the “best business talk show host in the country.” Find out why and visit his blog at www.BizPlusBlog.com and his show site at www.PriceofBusiness.com. You can also find Price on Strategy Room at FoxNews.com.

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