Middle America undergoes a crisis of confidence

Middle America undergoes a crisis of confidence

Federal Reserve Chairman Ben Bernanke, President Bush and Treasury Secretary Henry Paulson are talking up the value of the dollar in an apparent attempt to put the brakes on oil prices, which are computed in dollars, and to send a message that the Federal Reserve and the administration are serious about fighting inflation.

But the optimistic tone had no affect on Wall Street, where the Dow-Jones average remained below 12,000, and little effect on the price of oil, which dipped a few dollars a barrel.

And it is likely that very little that the government can say or do in the short term is going to change the way most American people are feeling about the economy.

The latest consumer confidence figures came out Tuesday and they are worrisome.

According to the Conference Board, a business research group, consumer confidence is at a 16-year low.

The index is based on a benchmark of 100 in 1985, and as recently at 2000 it was a heady 120. Just last July, it was at 112, but since then it has been all down hill, to 58.l in May and, now, 50.4. And a lot of people apparently think things are going to get even worse before they get better. The Wall Street Journal reported, “Consumer expectations of the economy six months ahead plunged to the lowest levels since the board began conducting its surveys in 1967.”

Reluctant buyers

That kind of pessimism doesn’t bode well because consumer spending drives two-thirds of the nation’s economic growth. Consumers who are unsure of the future consume less. As they cut back on their spending habits, either voluntarily because they’re worried or involuntarily because they have to, the slowdown will accelerate. The turnaround, which the most optimistic economists put at late this year, will be postponed.

Not among the optimists is William Hummer, chief economist at Wayne Hummer Investments. He told the Associated Press, inflation, political flux and job insecurity have created an “uncertainty more acute, perhaps, than any time since 9-11.” He added: “I don’t think this can be purged immediately by an election or anything else ... it’s endemic, deep-rooted and likely to persist.”

To those who find this hard to believe, the cause of such pessimism can be found at any gas pump or grocery store in the country.

The prices of things people need to buy keep going up.

Not everyone may have done the math, but they know they are being squeezed. Well, here’s the math. If a person drives 12,000 miles a year in a car that averages 25 miles per gallon, every additional dollar per gallon costs that person $480 a year. That means the average driver has lost more than $500 in purchasing power since last June. Gasoline has gone up $3 per gallon in the last seven years. That means a loss of $1,500 in annual purchasing power in 2008, compared to 2001. That’s just for gasoline.

Drivers are reminded of that reality once or twice a week — and almost all are convinced that the cost of gas may fluctuate by pennies, but it’s not going to go down by any significant amount.

This presents an economic quandary that people who ride in government limousines or other government-issued cars using gasoline paid for by the taxpayers may not yet understand. But they had better start trying to.