The Bloomberg Consumer Comfort Index was created in 1985. It measures perceptions on the state of the economy, personal finances and whether it’s a good time to buy goods or services. The index is updated weekly, making it a timely sentiment gauge. The index is based on a telephone survey of 1,000 adult consumers. Each week, 250 respondents are asked for their views on the U.S. economy, personal finances and buying climate. The percentage of negative responses is subtracted from the share of positive views and divided by three. The index is based on the average of responses over the previous four weeks and can range from a high of 100 to a low of minus 100.
The Consumer Comfort Index for the week that ended April 21 fell slightly from the prior week to minus 29.9 in the week ended April 21 from the prior period’s minus 29.2 (which was the highest since January 2008). Although the index has been trending upward wince the beginning of 2012, it has not been positive since 2007, and has consistently been negative since 2001 – over 12 years.
According to Bloomberg.com, households were the most optimistic about their finances in 10 months, and the personal finances gauge climbed to the highest point since June 2012, indicating that rising home values and easing fuel costs are helping to shore up balance sheets. However, Americans’ views on the current state of the economy dropped to minus 58.3 from a five-year high of minus 54.7 the prior week, and consumers were not inclined to spend, with the index on the purchasing environment holding at minus 34.8, little changed from a four-month high of minus 34.6 in the prior week.
The fact that an indicator showing that most Americans believe the economy is doing poorly is touted being at a 5-year high, is a strong indicator of how poorly the economy has performed over the past few years. Even with the housing bubble of the mid 00s, this indicator has shown Americans to be particularly pessimistic about their finances and the economy ever since the 9/11 terrorist attacks. This long term “depression” has not been seen in the country since the 1930s, and has continued for a longer period than the Great Depression. Economists of nearly all perspectives believe that there is an animal or entrepreneurial spirit that drives the economy and this long term negativity seems to be having an effect. Business investment, business startups, labor force participation and hiring are all showing long term weakness that even huge monetary and fiscal stimulus efforts have not been able to overcome. This is something that those working in most industries need to keep in mind when looking at expansion plans.
Those of us working in government affairs also need to consider how long-term economic weakness will impact governments’ ability to continue to expand and spend resources. Without economic driven growth, tax revenues will continue to be flat and politicians will need to focus on revenue raising measures – including rate increases – to continue to fuel their ever increasing spending.