Ninety percent of the game is mental, the other half is physical.
Yogi Berri – Baseball Coach & American Philosopher
When in doubt, fall back on the words of the greats.
Although he never attended Wharton or Stanford, never ran a major Wall Street bank or advised presidents, baseball legend and master of double-speak, Yogi Berra may have a better grip on the state of our economy than any of the knuckleheads currently running the show.
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To no one’s surprise, confidence among U.S. consumers dropped in December to a record low as Americans grew increasingly concerned about jobs, raising the risk that spending will keep weakening into the New Year.
The New York-based Conference Board’s index of consumer confidence plummeted to 38, the lowest level since records began in 1967, down from 44.7 in November. Another report released today, showed declines in property values accelerated.
The Value of Your Home
According to the S&P/Case-Shiller Index, home prices in 20 U.S. cities declined at the fastest rate on record, depressed by mounting foreclosures and slumping sales. The index showed an 18 percent loss in the 12 months to October, more than forecast, after dropping 17.4 percent in September. The gauge has fallen every month since January 2007.
Fears about the stability of the labor market are dominating the mental outlook of American consumers. The share of consumers who said jobs are plentiful fell to 6.2 percent, the lowest level in 16 years, from 8.7 percent last month. The proportion of people who said jobs are hard to get increased to 42 percent from 37.1 percent.
The financial market meltdown that’s reverberated around the globe has prompted banks to curb lending, signaling the housing slump will persist for a fourth year in 2009. Falling property values have eroded household wealth, causing consumers to pare spending. This deepens what is projected to be the longest recession in the post-war period.
Nothing seems to be able to brighten the consumer mood.
Why Does the Fist Remain Closed?
Even though gasoline prices have hit a 4-year low and average rates on 30-year, fixed-rate mortgages dropped to 5.14 percent, their lowest level since 1971, consumers still remain tight-fisted.
Overnight, the Treasury committed an additional $6 billion to GMAC — the financing arm of General Motors that recently was permitted to become a wholly-owned, regulated bank – expanding its aid to the troubled carmaker. GMAC got into trouble when it started starting financing home purchases instead of autos just prior to the collapse of the real estate bubble.
G.M. execs have argued that their recovery efforts have been stymied by illiquidity and the inability of GMAC to finance new car purchases. But even with this latest bailout, it’s going to be tough for G.M. or any carmaker to lure consumers back to the showroom floor.
Not Since the Early ‘80s
Statistics notwithstanding, the bottom line is that American consumers feel much worse about the future than anytime in the past 25 years.
They have come to realize another of Yogi’s truisms; “a nickel ain’t worth a dime anymore,” and “the future just ain’t what it used to be.”
John Cohn is a senior partner in the Globe West Financial Group[ based in West Los Angeles. He may be contacted at www.globewestfinancial.com
