The Guest Blog

Dunkelberg: Americans Braced for More Bad Times Ahead

William Dunkelberg, Economics Professor, Temple University

Skeptics of the importance of “uncertainty” about government policy and government actions as major impediments to spending and investment might take a close look at the August report from the University of Michigan/Reuters Consumer Sentiment Survey.

It makes it clear that this is a major issue.

Three-fourths of a random sample of consumers expect “bad times” for the economy in the coming months, just below the survey record of 82% reached in 1980.

Asked for examples of recent news that explained their pessimistic view of the economy, 25% provided spontaneous negative responses about government, a record in the 50 year history of the survey, exceeding the last record which occurred in 2010 when the health care act was passed. When asked to rate the Administration’s economic policies, 57% gave the Administration a negative rating, a record high, exceeding the worst ratings given to any past President. Only 5% had a positive view of Administration policies.

Survey director Richard Curtin observed “Consumers have shifted from being optimistic about the potential impact of monetary and fiscal policies to a sense of despair and pessimism about the role of the government.”

The current Index of Consumer Sentiment(a composite of 10 questions) has been lower in only 3 months in the survey’s history, two months in 1980 and in November, 2008.

Consumers now view reduced spending as the best financial decision in response to adverse events, rather than borrowing or drawing down savings.

Even though consumers are financially constrained with debt restructuring and plagued with falling house values, it has been my contention that there is still enough discretionary spending power to support higher levels of growth than currently being experienced. Nine of ten people who want a job have one. It is fear and uncertainty about the future that induces them to follow the most conservative financial paths.

Had the Administration come up with a “Main Street believable” plan, a path that made sense, consumers and businesses would be more forthcoming. Instead, the Administration basically refused to stop the spending/borrowing binge, and opponents refused to burden citizens with even more taxes to support it.

Interestingly, the accused “terrorists” and “hostage takers” are those who support what a solid majority of consumers support in the polls – reducing the size of government from the record 25% of GDP it now commands and reducing future spending commitments and the associated growth in debt before the U.S. becomes a “Greece”. Republican candidates for president that espouse these ideas are called “extremists”, “radicals” – but President Obama is “main stream”?

We have all tried to live beyond our means by borrowing, both individuals and the governments that represent them. Obviously not everyone can, and the consequences of continuing on such a path will be calamitous. The evidence is so clear, let’s see if anyone really pays attention.

William Dunkelberg is an Economic Strategist, Boenning & Scattergood and Chief Economist, National Federation of Independent Business.