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 0.
The Consumer Comfort Index for the week that ended September 7 fell to its lowest level since the beginning of August of 2014, to 36.5. All three components of the index fell with personal finance down slightly to 53 from 54.2, views on the current state of the economy down from 26.7 to 25.3 and opinions on whether this is a good time to purchase goods and services, decreased to a 10-week low of 31.2 from 32.1. According to Bloomberg.com, while attitudes about personal finances hovered close to a six-year high, views on the national economy were the dimmest since early June.
The fact that American’s opinions on the state of the economy are so negative, with only a quarter believing that it is in good shape shows how shallow the recovery has been. This ties in with a range of other indicators including those showing high levels of underemployment, nearly no wage growth and a yawning gap between the richest and poorest fifth of the population. This plays out in the financial indicator which suggests that half of respondents were satisfied with their personal finances. Generally, the economic policies being pursued by the major economies are all designed to inflate asset prices, so those who possess wealth, be that in terms of a home or equities, are seeing prices soar as virtually free credit is being used for stock repurchases, and being dumped into assets. When one can purchase a $10 million condo in New York City with the cost of money below expected inflation rates, it encourages wealthy speculators – particularly those from abroad – to bid up the price of real estate.
Unfortunately, little of this money is being put into productive activities, which is why unemployment and wage growth continue to be an issue. If the economy cannot grow production to match asset price inflation in the medium to long term, this asset price inflation becomes unstable. This can happen quickly and should be of concern to investors.
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.
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