A Monday Thought

For quite sometime now I have considered myself the eternal optimist. I am always one to see the glass of life as half full, not half empty. Over my professional career, I have blown away all of my goals and objectives and have lived a very comfortable life. I am far from rich, but regardless, I have never “wanted” and my kids have never seen a day of life below a very comfortable existence. Great vacations, a nice house, two cars, a dog and all the extra-curricular activities you could think of.

I bring this up to lead into a discussion on consumer confidence. Surprisingly, last month, the Consumer Confidence Survey and the Consumer Confidence Index both improved dramatically versus August levels. The perception is that consumers are more positive in their assessment of current conditions like the jobs market, business conditions, employment and their financial condition.

Call me crazy, but I just don’t see it and like I said above, I am an optimistic person by nature. I remember the great line by President Reagan, “if your neighbor is out of work it is a recession, if you are out of work, it is a depression.” So true, but yet in the current quagmire, I believe we are painfully in the middle of a depression and recession (derecession??). Ask all around like I have. Listen to whisper conversations at the football and soccer games this fall. People are scared about employment and rightfully so. More people are worried about not just being out of work (which way too many are) but they are opening their eyes in the morning and not knowing if it will be their last day at work. Those that have been out of work for extended periods of time have had to take jobs below their prior income levels. Bonuses from prior years (which are the life blood of Wall Street employees) has been dramatically reduced over the past few years. Wives, who have not worked in the “real world” for years or even a decade are now slowly making their ways back into the part-time employment picture (receptionist, school aide, etc.)

And what do people have to say for this - absolutely nothing. In a good/recovering/improving job market, disgruntled employees would simply shop their ware to a competitor. Those days are gone and employers and employees know it. Everyone is on the frontline digging sandbags and hunkering down. No one I know is talking about their great stock pick or how well their mutual funds are doing, the new car, summer house, lavish vacation. The item front and center is being employed and JOBS.

This worry and angst is spilling over into consumer spending and consumer confidence. To put how important consumer spending is to our GDP, you have to realize that it accounts for 70% of our U.S. economic activity. Excluding iPhone5 sales and having to pay $4.29 for a gallon of gas (in New York) and there has been little room for leisure purchases. I simply can not see the broad economy improving anytime soon under the current economic conditions.

I hate to damper your outlook even more, but simply take a walk around your downtown neighborhood. Look for three things – For Sale signs on homes, For Rent signs in darkened store fronts and Markdown signs in retail establishments. If these depressing reminders that we are still mired in a derecession are still plentiful, then the confidence of the people will not come back for quite some time. Overlay this with an expected drop in the stock market between now and the end of the year (if Obama is reelected) and I do not see blue skies ahead.

Basic understanding of many economic statistics is lacking for most Americans. Let’s dissect a few. Unemployment Rate – is the measure of the prevalence of unemployment and it is calculated as a percentage by dividing the number of unemployed by all those in the labor force. Full employment is somewhere around 3%-4%, recessions typically have 7%-8%, and depressions and severe recessions are usually double digits. The problem with the unemployment rate stated in the news is widely misleading. The government calculates unemployment using six different rates, U1 – U6 which measure varying aspects of unemployment. The official rate all of us see in the news is the U3 and occurs when people are without jobs and the have actively looked for work within the past four weeks. This is the rate that has been used since the Clinton administration. The problem with this rate is a deteriorating economy can actually improve the rate as the amount of people who stop looking (discouraged workers) are taken out of the equation while the amount working may simply stay the same. If September had 100,000 people out of work and 1,000,000 in the labor force working or actively looking for work the U3 rate would be 10%. The next month, October, had 90,000 people out of work but the labor force was reduced by 50,000 due to disenchanted workers or those that dropped off the four week looking for work criteria then the labor force would be 950,000. The U3 rate for October improved dramatically from 10% to 9.5% the headlines would read. But, look at the numbers, the only reason the rate went down was because 50,000 people left the labor force. Maybe some retired (there are more and more aging babyboomers), but I would argue that a higher percentage of the 50,000 were disenchanted workers. The unemployment rate stated prior to the Clinton administration was the U6 rate, which includes people not looking for work and are unemployed. A derivative of this rate is the under-employment rate which accounts for those people who are still working but making considerably less than prior years (the examples mentioned in my first few paragraphs). Both the U6 unemployment rate and the under-employment rate have remained painfully high during this weak recovery and in fact both of these rates are firmly in the mid-teen double digits. Not a good boost to consumer confidence.

This segues into my next economic statistic related to the strength of economic activity. For all government forecasts of Gross Domestic Product, a 3% annual rate is used for calculations. Some years are expected to be 5-7% in post-recession recovery times. A few negative quarters of a mild recession usually lead to a -.5% - flat +0.5% annual GDP. However, 3% is the average. Last week, Q2-GDP for the US was revised down from 1.8% to 1.3%. Inflation at 1.7% (another fun with numbers calculation) is currently running at a rate slightly higher than 1.3%. So guess what, real GDP is negative. Another horrible consumer confidence measure.

My last bit of depressing economic analysis is the above mentioned inflation rate. The last I checked, the main components to weekly purchases for a family are food and energy. However, the inflation rate cited by the government excludes these items and the 1.7% rate looks quite impressive (yet still outpacing GDP growth). If you include the price of gasoline, utility bills and food the inflation rate hitting middle America is quite high.

Again, like all my rambling thoughts, I try and correlate them to make my point. Consumer Confidence is not good, and I do not see it improving under the Obama administration. The last 3 ½ years have been a disaster and I do not want to see them get worse. Please, please, please do not elect this man again. His policies are destroying this country. I want to wake up happy on November 7th and feel confident that President-elect Romney can begin to repair the mess he inherited. Ohio, Florida, Virginia, Wisconsin and North Carolina voters take note.

More can be read via my two novels, Cameron Nation: Going All-in To Save His Country and Columbus Avenue Boys: Avenging the Scalamarri Massacre. www.cameronnation.com.