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Recession Tightens in June after Easing for Three Consecutive Months

Posted June 20, 2009

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President Obama and Chairman Bernanke were well advised to salt their optimism about the economy with warnings of bumps to come. In June, the economy hit a bump. Consumers – including the roughly half invested in the stock market – have lost sight of which way is up. They flap between optimism and pessimism in response to the news of the hour.

RECESSION TIGHTENS: More consumers in June than in May feel their buying power has been constrained. The Consumer Balance Index (CBI) drops three points from 85 in May to 82 in June, after having surged seven points between April and May.

The CBI tracks consumer perception of their buying power by ascertaining how they see the balance between their income and assets versus their debt and spending.

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INFLATION AND EMPLOYMENT FEARS ERODE CONSUMER BUYING POWER: The percent of consumers reporting prices have increased in the past month jumps nine points from 44% in May to 53% in June – the highest level since November 2008.

More consumers in June (27%) than in any month since October 2008 (33%) say they expect the prices to rise at a steeper rate in the coming months.

The percent of Americans who fear layoffs increases three points from 54% in May to 57% in June – the highest level seen since this tracking measurement began at the start of the recession.

THE RICH FEEL POORER: The percent of consumers with the “Strongest” financial balances declines three points from 20% in May to 17% in June, wiping out most of the four-point gain between April and May.

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ACTIVE SHOPPING FOR MAJOR GOODS INCREASES IN JUNE: Despite the unfavorable shift in consumer financial balances, income and employment expectations, the index that tracks active shopping for new cars, housing, and eight other major goods jumps eleven points, from 92 in May to 103 in June – the highest index since the February 2008 index of 111.

While active shopping for major goods increases overall, active shopping for housing plunges from an index of 62 in May to an index of only 30 in June, which is five points below its previous recession low of 35 in January 2009.

Increases in active shopping are particularly notable for new cars, major appliances, and air travel.

Consumers shopping actively for major goods concentrate among those with the strongest financial balances (CBI).

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FEWER CONSUMERS SPEND FREELY FOR CONSUMABLES: The index tracking consumer willingness to spend freely for food, clothing, gasoline and medical expenses ticks down from 74 in May to 73 in June – the lowest index reading since the October reading of 71.

Consumers willing to spend freely for consumables concentrate among those with the strongest financial balances (CBI).

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CONSUMER CONFIDENCE IN THE NATION’S FINANCES: There is a disconnect between consumer expectations for their own financial situation and the nation’s financial situation.

While consumers are pessimistic about their own finances, they are optimistic about the nation’s finances. The percent who expect the economic picture for the nation to get better moves up from 53% in May to 58% in June.

APPROVAL OF OBAMA: The percent of Americans reporting they are pleased with Obama’s performance in office increases. from 58% in May to 62% in June.

INVESTOR CONFIDENCE: Despite fears about their personal finances, investor confidence in the price of stocks increases. Between May and June, the ratio of investors who would buy rather than sell in the event the Dow went down by 10% goes up from 1.04 buyers for each seller in May to 1.34 buyers per seller in June.

At a 1.34 ratio of buyers to sellers, investor confidence is relatively weak and subject to wide fluctuations – as wide as stock prices have been recently – in response to the news of the day.

Click here to see graph

ABOUT THE FUTURE: Sage reports monthly on what it learns about consumer spending and saving at the existential moments its survey is taken, without commenting on the dynamics causing change or making projections about the future.

Even in a month like June 2009 where there are anomalies and disconnects in the data, Sage bites its tongue and simply reports rather than explains tomorrow’s news today.

TO ASK QUESTIONS, make suggestions or offer your projections of the future, phone Leo J. Shapiro, CEO, SAGE: Survival and Growth Enterprises LLC. He can be reached in Tucson at 520.878.0188