As most of you know, the consumer represents the largest part of our economy. The key to getting our economic recovery (1) moving forward is to ensure that consumer confidence continues rising. The only problem: consumer confidence isn't rising—in fact, it's dropping sharply.
One of the few reports available on recent consumer confidence (due to the government shutdown) is the Bloomberg Consumer Comfort Index, which showed a significant drop from -9 in September to -31 in October. This latest reading is now the lowest level of consumer confidence since November of 2011. (Source: "Consumers' Outlook for U.S. Economy Plunges to Two-Year Low," Bloomberg, October 17, 2013.)
Now, I know what you're thinking: consumer confidence naturally took a hit when all of the shenanigans in Washington began, culminating in the U.S. government shutdown.
That is true. A big part of the drop in consumer confidence was directly due to the ridiculous position that Washington imposed on all of us. And I'm sure when we begin to see the economic releases flowing out of government agencies again, the news will be that the economic recovery has stalled due to the impact of the shutdown.
However, there are two points that still bother me.
The first is that prior to the government shutdown, the level of consumer confidence, at least from the Bloomberg Consumer Comfort Index, was still very low. It's not as if consumer confidence and the economic recovery were barreling full steam ahead, and then all of a sudden the government shutdown let down the anchor.
The truth is that both the economic recovery and consumer confidence (2) were far below optimal levels even before the government shutdown.
For anyone to think that consumer confidence dropped simply over a couple of weeks during the government stoppage, to me, indicates that they're not looking at the entire picture. Going into this ridiculous situation from Washington, the economic recovery in America is and still remains extremely weak—and consumers know it.
This is why consumer confidence remains muted and we're seeing many companies unable to grow their revenues. Who in their right mind is going to increase spending on discretionary items when there's so much uncertainty in America? This is the core problem, and it's why consumer confidence will continue to lag, dragging down the economic recovery.
The second point that bothers me is that nothing has changed in Washington—I don't mean the long-term problems that we all know need to be fixed, but rather the short-term band-aid solution they called a "deal."
Washington did it once again; it kicked the "debt" can down the road until after the New Year. We are going to have the same mess in a few months.
Americans aren't stupid; we know that nothing was resolved. All this temporary deal is going to do is keep consumer confidence weak and prevent any economic recovery.
I don't know about you, but I certainly wouldn't look to spend all of my money if I knew that in a few months the debates would continue and the bickering among politicians would flare up again.
As I stated over the last few months, I would continue avoiding companies that sell discretionary items. With consumer confidence remaining weak and no sign of the economic recovery accelerating, I find it hard to believe that average Americans are excited about spending more money ahead of yet another headache in just a few months.
Conversely, look at the reaction in the gold market. I think the large move up in gold prices is a sign that people are getting fed up with American politicians and are losing faith in the ability of our so-called leaders to run the country.
So far, we've been relatively lucky that the world has no alternative place to invest their money. But times are changing and the inability of politicians to actually do something as basic as balance a budget is creating serious damage to our reputation both at home and around the world.
This article Why Consumer Confidence Will Remain Weak for Months to Come (3) by Sasha Cekerevac, BA was originally published at Investment Contrarians (4).