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Tuesday, April 26, 2011

Bernanke Should Consider Declining Confidence at His Press Conference

It was disappointing to see the Conference Board's report on April 25 suggesting consumer confidence had increased in April. Gallup's most recent weekly Economic Confidence measure shows the reality is just the opposite.

The Wells Fargo/Gallup Small Business Index shows small business owner optimism also declined in April.

This is a critical moment for the U.S. economy and not a time to be misled by an outdated report claiming consumer confidence is increasing. Surging gas and food prices have combined with political battles over fiscal policy to drive consumer optimism down so that it is far below where it was a year ago.

Odds are that Bernanke will try to say as little as possible about monetary policy in his press conference Wednesday hoping to keep Wall Street from succumbing to the growing pessimism on Main Street. What Bernanke really needs to do is find a way reassure Americans that monetary policy will be responsible whether the politicians can find their way to a fiscal compromise or not. This will be tricky given quantitative easing, a fragile economy, and the possibility of stagflation. But reassuring Wall Street is not enough for Bernanke to succeed before the press on Wednesday -- reassuring Main Street is the real challenge.


Anonymous said...
April 27, 2011 at 9:15 PM  

I am no economist, although I've been told I'm better informed than the average person on matters of finance and economics. I do agree with Mr. Bernanke -- the economy does appear to be improving, and I'm basing that on the number of calls I've been getting from executive recruiters contacting me about real jobs at salary levels appropriate for my level of experience.

I also agree that consumer perceptions of the economy are being colored by gas prices, which are being passed along to consumers in the form of higher prices across the board -- food, public transportation, apparel, service, etc.

What I haven't understood and continue to not understand is why corporations refuse to start hiring. They are sitting on cash that could be invested in growing their companies by investing in innovation that is so sorely needed in this country.

Part of what I've observed is that corporate executives continue to manage by keeping their heads down and not rocking the boat. Staying below the radar until they can get their kids through college, the second car paid off and whatever else they need to do to stay afloat. This is not a climate that embraces error, even if the "error" can lead to an experience from which a profitable innovation is born.

Additionally, corporations continue to compensate executives for keeping costs low. That includes not hiring, or not paying employees, including freelancers a fair day's wage. It is disgusting that so many corporations try to get senior level talent for an entry level price. Do they truly believe that is sustainable?

I am old enough to recall previous downturns when corporations took advantage of the under-employed and the unemployed, by having them do trial presentations, stealing their work, severely underpaying employees, not increasing salaries and foregoing bonuses by finding lame excuses for not paying them out. When the economy did pick up, those same employers did nothing but moan about how employees lacked loyalty because their organizations turned into revolving doors and the cost of doing business increased by the high turnover. (Ta-da!)

Corporate greed is what is keeping this economy from turning around. As long as corporate executives can squeeze blood out of a turnip, there is no need to hire. As long as they can get away with managing in 12 week increments, there is no need to hire. This can go on indefinitely. All it takes to turn it around is one CEO with big brass ones to tip the first domino and begin to steal market share from its closest competitor. Panic will set in and they'll all start spending again.

The question is, who has the big brass ones?

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