US consumer confidence is collapsing

Image by Sifter via FlickrUS consumer confidence is collapsing and there is no other word for it. The Conference Board's index of consumer confidence posted yet another decline in October, falling to 39.8 (previous: 46.4) - the weakest reading since the end of the recession! Looking at the detail there is a rather worrying issue here as the decrease reflects declines in both the present situation and expectations components, whereas the previous, more recent major moves down in the index were driven primarily by the expectations component.

This means the concerns are NOW. Spending will now surely take a hit and some shocks in retail sales are on the way in the US and in the UK as deleveraging is forced upon the masses. I cannot highlight or stress how important this issue is to growth everywhere. As prices increase and wages stagnate, things are going to get tougher into the winter and I note with interest the component in the US data highlighting concerns over future earnings. In the past low confidence has not always hit sales but in my mind things are different as the debt burden is almost unbearable and many have little credit left, adjustments will have to be made.

When these adjustments come through, in my mind very soon, the Fed and other central banks may see a steep move towards deflation as growth stumbles and economies go back into recession, probably led by the EU then the UK and finally the US. The world cannot fill that massive customer void.

The timing of this could be dreadful as just at a time when the world needs China and the other Asian exporters to pull us through, the hard landings will hit. Global growth expectations are far too optimistic and policy shifts will be swift where possible. What the world does not need right now is a falling Dollar as that complicates matters worse but it is of little concern to Bernanke and Geithner as they are concerned about America and rightly so.

Again I reiterate that a world where we have deleveraging from Sovereigns (which demands draconian austerity measures), banks (lack of credit supply to small businesses, the essential for growth) and the consumer, is not a world that is going to grow. In fact the speed of the fall could surprise. More...