Combine the lowest interest rates in four decades, the biggest three-month risein stock prices since 1998, and a pending tax cut, and you get high expectations on Wall Street for an economic recovery in the second half of thisyear.
But any recovery really depends on Main Street, and whether consumers are goingto buy enough to convince businesses it's time to start investing again. In other words, it's all up to the American consumer -- and that elusive psychological condition known as "consumer confidence."Consumer confidence, in turn, depends mostly on jobs. When the employment report finally shows a turnaround -- more jobs created than lost, unemployment dropping instead of rising -- consumers are going to breath a sigh of relief. With paychecks more secure, and more of them, consumers will feel more comfortable crowding into the malls. But if the job reports continue the gloomynews we've had for over two years -- more job losses and rising unemployment --all bets are off.
The Conference Board's monthly survey of consumer confidence shows consumers more optimistic about future economic conditions than they were in May. That good news made a lot of headlines. But in the same survey, when asked about thestate of the current economy, consumers were more pessimistic than in May. And that's the big problem. Because, you see, how we feel about our current livelihoods is more important than what we expect six months from now. If our current paychecks, our current debts, and current bills paint a pretty grim picture, we're gonna hold back spending.
Yes, lower interest rates have allowed a lot of us to refinance our homes and take some home equity in cash. But the flip side of this is higher mortgage debt. Assuming that interest rates have hit bottom and housing prices won't rise much further -- fair assumptions -- households can't afford more borrowing. So if they look at their current paychecks, current debts, and current bills, many will have no choice but to purchase less.
That's why the jobs issue is so central to all this. It's the paycheck, stupid.Keep your eyes on the monthly jobs reports. Not until the number of jobs and paychecks starts to increase again will this economy really begin to turn around.
