“Consumer confidence fell to a five-year low this month as Americans confronted the grimmest jobs outlook since late 2004, while data also showed a record drop in home prices in February.

Contributing to their slumping confidence in April, consumers expected that inflation would accelerate to a pace last seen in the early 1980s. The news cemented the prevailing view that the Federal Reserve, which is to open a two-day policy meeting later on Tuesday, would signal an end to its aggressive campaign of lowering interest rates.” (Via Reuters)

The fact that consumer confidence is at a 5 year low is not that alarming as it has been roughly six years since the last US downturn.

What is very interesting is that consumers are already thinking about high inflation similar to that of the 1980s. There hasn’t been any hard economic evidence that inflation is going to get out of control, although there are some warning signs that it *could* eventually happen in this cycle.

One thing is for certain, if consumers perceive inflation and are not confident, the stimulus cheques mailed out to millions of Americans will end up in bank accounts instead of the economy. Hindsight is beginning to make that decision look very irrelevant indeed.

US President Bush is currently holding a news conference addressing the US economy at the White House.

One of his main points was to call out Congress for blocking his proposals to address the (economic) problems.

He called on Congress to pass sensible and effective bills in order to keep the economy moving forward through focusing on energy, food prices, mortgage payment and student loans.

Bravo, Mr. Bush. In essence you have just stated that “I tried, you wouldn’t listen! So now it’s your problem Congress, deal with it!”. Energy, inflation, the housing mess & student loans are no longer the problem of the President. So what exactly will you be doing, Mr. Bush, for the next 8 months?

 

“In the worst start to a year for more than a decade, most money managers had retail outflows, and even stalwarts such as American Funds and Vanguard suffered a drop in assets, of 6.6 per cent and 4.3 per cent respectively.” Via (Financial Times).

Translation from business speak into English:

“People are taking money out of mutual funds”

This shouldn’t surprise too many people. The Dow Industrial Average went from over 13,000 to 12,300 during the first three months of 2008. Couple the market turmoil with the new year when people traditional re-evaluate their portfolio, and you have your explanation.

There is a nugget of good information towards the end of this article.

“….long-term assets do not include money market funds, which have seen big inflows”

Translation: “People are simply switching from equity funds to money market funds” (money market funds are simply short term highly liquid and secure parking spots for cash that yield a bit of interest)

Why is this good news?

Because it shows the problem in the 1st quarter was just market confidence. People aren’t dipping into their investments to pay for bills. If we saw a drop in equity assets and money market, that would be an alarm bell.

Reuters has an article on President Bush’s recent comments at a summit with Canadian Prime Minister Stephen Harper and Mexican President Felipe Calderon.

He said: “We’re not in recession, we’re in a slowdown”

This, ladies and gentlemen, is reason number #452 that Mr. Bush will go down in history as one of the worst US presidents.

Now, technically he’s right (ghastly, I know). The textbook definition of a recession is at least two quarters of negative growth in an economy. We’re not there yet, but all the signs on the road point are pointing to one, perhaps even a deep one.

The reason that this comment strikes me so hard, is the tone. He knows a recession is on the horizon. His advisers have shurley briefed him on that. He could have made a statement on things every day americans need to do in order to protect themselves during tough times. He could have made a statement calling for americans to rally and support the economy. Instead, he asked Congress not to raise taxes. That might be a good idea, but not an inspiring one.