Sweet & sour: Economists upbeat on economy; consumers, less so

In the most recent surveys on sentiment, economists see slightly better days ahead, while consumers are not so certain.

Economists surveyed this month by Bloomberg News now expect the U.S. economy to expand faster than previously forecast, for both the second half of 2009 and in 2010. Economists surveyed anticipate 1.5 percent GDP growth in the second half of this year, compared with a 1.2 percent growth forecast in June; they also see 2.1 percent GDP growth in 2010.

However, consumers are more cautious. The Reuters/University of Michigan Surveys of Consumers said its consumer sentiment index for July (preliminary) decreased to 64.6 from 70.8 in June. The index was at 68.9 in May. The index hit a cycle low of 55.3 in November 2008; the index's record low of 51.7 was set in May 1980.

Economists surveyed by Bloomberg News had expected the Reuters/UMichigan index to rise to 71.5 in July.

Economist: 'the right things are happening'

Despite the renewed concern by institutional investors that the global recovery won't arrive as forecast in Q3/Q4, Stephen Stanley, chief economist for RBS Securities in Stamford, Connecticut, is in the camp that argues the U.S. economy remains on the verge of a turnaround.

"We are on the cusp of stabilization," Stanley told Bloomberg News Friday. "The right things are happening. They're not happening fast enough to make everyone comfortable just yet, but we're certainly headed in the right direction."

Midwest: Little economic improvement seen, so far

However, if conditions in the Midwest are indicative, the reports of a national groundswell in consumer sentiment were perhaps premature. State agencies in Michigan say they are seeing an unprecedented rise in demand for food assistance across the region, and they expect the numbers to grow as the unemployment rate rises, The Wall Street Journal reported Friday.

Michigan resident Jeff Holler, 52, married with two children, is one who can verify that economic conditions have not yet tangibly improved for the typical person.

Holler said he broke down in tears when he and his wife, Velina, stepped into the Lighthouse food pantry near their home in Oakland County, Michigan in late May. Holler, an environmental engineer with a master's degree, had lost his $75,000-a-year job at a technology company a month earlier, and like millions of Americans, has had trouble finding steady work, due to the nation's staggering lack of jobs, The Journal reported. "It was hard to take," Holler told The Journal. "I've never had to do anything like this in my life."

Investors should pay attention to consumer sentiment because it usually precedes consumer decisions to buy (rising sentiment) or hold off on purchases (falling sentiment) -- and, historically, consumer spending has accounted for the bulk (60 to 65 percent) of U.S. GDP.

Economic Analysis: What we can say is that the interventions to-date have averted the collapse of both the U.S. and global financial systems, and have provided liquidity to markets. But it's unreasonable to assert at this juncture that there's enough stimulus in the system to "guarantee" an economic recovery. More than 6.5 million job losses, combined with belt-tightening by Americans in general, point to tepid demand conditions, and so long as the number of Americans unemployed grows, it's hard to envision a sustained turnaround in consumer sentiment, and by extension, in consumer spending.

An increase in demand must occur from somewhere -- public, private, corporate, non-profit -- to get the American economy moving again and creating jobs: that's the only way corporate earnings will reverse, and start to increase.

Read Full Story
  • DJI26827.6457.440.21%
  • NIKKEI 22522548.9056.220.25%
    Hang Seng26725.686.100.02%
  • USD (PER EUR)1.120.00000.00%
    USD (PER CHF)1.01-0.0002-0.02%
    JPY (PER USD)108.600.03500.03%
    GBP (PER USD)1.30-0.0003-0.02%