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Inflation Eases, Recession Deepens


Posted Sep 14, 2008

This is a report on recent change in consumer perception of their financial balances that affect their ability to continue their current rate of spending.

Between July and August, fear of accelerating inflation eased. Fewer consumers said they believed prices would rise at a steeper rate in the coming months (54% in July down to 36% in August).

On the negative side, concern about recession increased month to month. More consumers in August than in July reported there was a chance that someone in their household would be laid off (40% up to 49%) or suffer some other interruption of employment.

The net effect of diminished fear of accelerating inflation and increased expectations of recession on consumer feelings about their finances was positive but not of sufficient magnitude to signal the end of hard times and a substantial increase in spending.

Americans are a nation of bookkeepers who control their spending by tracking all transactions so as to maintain a favorable balance between their ability to spend (income, savings rate, income expectations) AND their spending obligations (living expenses, debt service, payment for planned major purchases).

The Consumer Balance Index (CBI), which tracks consumer appraisal of their financial balance, declined from 95 in October to 87 in November marking the start of recession. Since then, the CBI has fluctuated month to month but remained at a recessionary level.

A four point gain in the CBI from 78 in July to 82 in August did not signal the end of hard times. Instead, it signaled a recovery from a four point dip from 82 in May to 78 in April associated with a spike in consumer fear of accelerating inflation. So far as consumers are concerned, the recession persists in August with no end in view.

Consumers are not affected equally by recession. Democrats with a CBI of 71 in August are more deeply affected by the recession than Republicans whose CBI is at 98 – a level typical of good times rather than recession. Consumers who do not say whether they lean toward the Democratic or the Republican parties have a CBI of 82.

The CBI is compiled on the basis of information obtained from telephone interviews conducted during the first ten days of each month with 480 consumers sampled freshly from the nation. It describes the situation that exists during the ten days at the start of each month during which interviews are conducted.

When the CBI changes significantly month to month, it is posted on 8sages.com together with analytic comment. However, starting today, the CBI index will routinely be posted on 8sages.com periodicaly.


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Recession Bite – Stagflation Looms March 27, 2008