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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This is a critical moment for the U.S. economy and not a time to be misled by an outdated report claiming consumer confidence is increasing.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.

Thursday, April 21, 2011

Politics and Gas Prices Hurting Confidence

Consumer expectations for the U.S. economy continue to plunge as the percentage of Americans saying the economy is getting better fell to 29% last week. In sharp contrast, 42% of Americans thought things were getting better during this same week in 2010.

In part, plunging consumer confidence is probably due to soaring gas prices -- now seemingly headed for their previous peak of $4.11 a gallon in 2009 -- and making Americans' forecast of $4.36 a gallon for this year seem within range.

However, consumer optimism may also be deteriorating due the current political atmosphere. Following last year's post-election compromise extending the Bush tax cuts, political cooperation was in the air and consumer optimism seemed to improve. Now, as Republicans talk about the need for major cuts in the federal budget and Democrats talk about higher taxes, political confrontation seems to be the standard and consumer confidence has taken a tumble.

The current political atmosphere is all too reminiscent of that prior to the mid-term elections -- too bad since the political climate following those elections seemed much better for consumers and the economy. 

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