Ouch! Your Lack of Confidence Really Hurts
Posted by Doug Rice on Tue, Feb 23, 2010 @ 10:40 AM
This can't be spun to be anything that painful, bad news.
Today, the new economic data shows a decided drop in consumer confidence.
The Conference Board, a private research group, said its index of consumer confidence declined by 10 points or fell by almost 20%!
In February the index fell to 46.0, 
from a revised 56.5 in January. The February reading was far below expectations by economists.
The present situation index, a gage of consumers' assessment of current economic conditions, fell to 19.4 this month from 25.2 in January, originally reported as 25.0. The February index was the lowest in 27 years.
(Note: Always pay attention to numbers that are the the highest or lowest in decades.)
Why this is important to you
The economy is comprised of (C) consumer spending, (I) business spending or investment, (G) government spending, and (NX) net exports - the difference in what is spent on domestic goods minus what is spent on foreign goods.
The breakdown (in round numbers) is 70% C + 20% I + 20% G + (-10%) NX for 100% of the Gross Domestic Product or GDP.
If consumers aren't confident, they don't spend. If they don't spend, given that they (we) are 70% of the economy, the economy can't grow. If they economy doesn't grow, it does the opposite. It goes into recession.
What's worse than one isolated number is that now it will hit the news wires and stories will circulate, like this one, that say the economy is in trouble. That will add to a downward pressure on confidence which can start feeding upon itself creating a downward spiral.
That's why this wasn't good news at all for anyone.
Ouch! That's going to leave a mark.