Consumer confidence jumped by 12.3 points in April, driven higher by a huge 19.3 point quantum leap in consumer expectations, observed the analysts at Global Insight. The jump in consumer expectations is related to the recent strong upward bounce in equity markets, less downward pressure on corporate earnings, and a reduced frequency of lay off announcements.
In addition, confidence in the Obama administration remained high as it pressed forward aggressively on a broad range of domestic economic stabilization measures, and recent major overseas trips to Europe and Latin America boosted sentiment about improved commercial and political links with key foreign nations. Recent successes at dealing with piracy on the high seas, as well as sentiment that the President is moving in the right direction on dealing with Afghanistan all contributed to better sentiment about the direction that Washington is taking.
The quantum leap in consumer expectations is the first statistically significant positive move in a major economic indicator in many months. We should be careful not to oversell this move, as the level of consumer sentiment is still not high enough to support a recovery in consumer spending. Indeed, IHS Global Insight expects real consumer spending to pull back in the second quarter of 2009 after advancing by only 1.3 percent in the first quarter.
However, the strong positive signal - when combined with other faint positive signals from selected industries, the housing market, the banking sector, and the tenor of financial markets overall - adds further evidence that that a trough in the economy is more clearly on the radar screen. That trough is still several months away, and our best estimate is that it would occur in the September-October timeframe.
Getting to a trough is an important rite of passage to recovery, so that is good news. However, considerable work needs to be done, and major hurdles overcome, over the next several months to lay the foundation for a recovery. This is not a time to back off the full thrust of monetary and fiscal policies and programs that have been launched to fight the recession. Rather, it should be an encouragement to re-double these efforts, as the probability of success has increased measurably in the past eight weeks and the U.S. would be in the enviable position of leading the global economy out of the grips of this severe recession.
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