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- Aug 22, 2008
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- 428
-The Conference Board measure of consumer confidence came in much weaker than expected in December, falling to 38 from 44.7 in November (originally reported as 44.9). This represented a record-low reading for household confidence. Expectations had been for falling gasoline prices to continue supporting a recovery in this measure to 45.5 from the 38.8 recorded in October.-The deterioration in confidence mainly reflected the “present situation” component, which dropped sharply to 29.4 in December from 42.3 in November. The “expectations” component fell as well, although more moderately to 43.8 from 46.2. The upward impact on confidence from falling gasoline prices was seemingly more than offset by the sharp weakening in November employment reported earlier this month. A survey question on “jobs hard to get” indicated the weakest reading since December 1992.
-The drop in confidence is discouraging because it makes the point that falling gasoline prices have been unable to offset the negative sentiment emerging from the ongoing weakness in both the labour and housing markets. The low level of confidence is consistent with the economy showing a sizeable decline in GDP growth in the fourth quarter, which we estimate at an annualized 6.1% contraction.
-However, this is expected to represent the weakest quarterly growth rate with declining activity starting to abate during the first half of 2009 and moderately positive growth returning by the second half of the year. Aggressive actions taken by the Fed via both lowering Fed funds to a range of 0% to 0.25% and opting for quantitative easing to address illiquidity in specific areas of the financial system are expected to be key factors turning around the economy. Equally important is the expectation that the Obama Administration will enact a highly stimulative fiscal package, variously estimated to entail spending of US$700 to US$1 trillion, early in 2009.
Paul Ferley, Assistant Chief Economist, RBC Economics Research
-The drop in confidence is discouraging because it makes the point that falling gasoline prices have been unable to offset the negative sentiment emerging from the ongoing weakness in both the labour and housing markets. The low level of confidence is consistent with the economy showing a sizeable decline in GDP growth in the fourth quarter, which we estimate at an annualized 6.1% contraction.
-However, this is expected to represent the weakest quarterly growth rate with declining activity starting to abate during the first half of 2009 and moderately positive growth returning by the second half of the year. Aggressive actions taken by the Fed via both lowering Fed funds to a range of 0% to 0.25% and opting for quantitative easing to address illiquidity in specific areas of the financial system are expected to be key factors turning around the economy. Equally important is the expectation that the Obama Administration will enact a highly stimulative fiscal package, variously estimated to entail spending of US$700 to US$1 trillion, early in 2009.
Paul Ferley, Assistant Chief Economist, RBC Economics Research