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Lack of confidence is at heart of the recession
(Modesto Bee, The (CA) Via Acquire Media NewsEdge) Mar. 8--The stock market is in the toilet.
Unemployment is soaring to levels not seen in more than two decades.
Business closures are so common it's tough to keep up with them.
The Northern San Joaquin Valley remains ground zero for foreclosures.
And government printing presses are working overtime to turn out more and more greenbacks to throw at these problems. Buddy, can you spare a billion or two or more?
Yep, the hits just keep coming.
So what's a battered consumer to do? Stay positive and spend. Remember, things will turn around. They always do.
But the latest consumer confidence numbers show that most folks are having a difficult time focusing on the glass being half full, assuming they still have a glass.
This all-encompassing lack of consumer confidence is being driven by "expectations," said Bill Herrin, who has a doctorate in economics and teaches at the University of the Pacific in Stockton. To be more specific, "negative expectations," Herrin said.
"People are worried about losing their jobs and their wealth," he said. "They see their 401(k)s and retirement plans shrinking. The stock market is falling. They cut back."
Being inundated with bad news reinforces their negative feelings. "When people hear that day after day, they expect things will continue (to be bad) and cut back even more," Herrin said.
Then the herd mentality kicks in.
"Individually, people may feel secure, but they see everyone cutting back and say to themselves, 'Everyone is cutting back. What do they know that I don't?' So they decide they better do the same."
Al Petrosky, who has a doctorate in business administration and teaches at California State University, Stanislaus, thinks that while today's 24-hour news cycle and the "extreme opinions" found there fuel some lack of confidence, it's personal experience that ultimately influences how consumers feel and behave.
"People are smart enough to know what's going on based on their own anecdotal experiences," Petrosky said. "Your opinion on how things are going is shaped by how things are going for you, your family and your friends."
The bottom line: Your experience is the primary driver in determining your level of confidence.
"A lot of this is self- reinforcing," said Elaine Peterson, who has a doctorate in economics and specializes in public finance at CSU Stanislaus. People see others losing jobs, so they cut their spending. That, in turn, means fewer sales and triggers more job losses. It's a downward spiral.
As worried consumers retrench and cut spending, they've also started doing something unusual in recent years -- putting more money in saving accounts. With the economy floundering, though, people are now being urged to spend.
But it was the easy credit terms and free-spending habits of consumers that triggered much of the current economic mess. Most know that and many suffered because of it, making a push for more consumer spending a tough sell.
"Most people realize their prospects are not as high as they thought and now they've got to retrench, cut back, live within their means," Peterson said.
Living within your means? There's a novel idea, but one that's likely taking hold as people struggle.
Herrin, Petrosky and Peterson agree it's going to take some time to turn things around.
The economic collapse the country is struggling with now was years in the making and won't be undone quickly. Given the "I want it now" mentality of consumers that prompted the excesses weighing down the economy, patience probably will be in short supply.
Patience aside, education is the key. While consumers may not want to hear all the gory details about the recession, that's the best way to ensure they don't repeat the mistakes that led to it.
If people learn the lessons of living within their means, they all will be better off. That means thinking more critically about the financial situations they get themselves into and investing in things that enhance their lives for the long term -- an education, job training and even an affordable home.
Applying such lessons to their daily lives could give consumers the confidence they need to move beyond all the bad news that's still to come. That learning process may take time, but it's time well spent.
Knowledge really is power and that breeds confidence.
DIRECTIONALLY CHALLENGED -- In last week's column about McHenry Village, I gave the wrong location for the shopping center. It's at the southeast corner of McHenry and Briggsmore avenues. I know how to get there, just don't ask me for directions. Sorry.
Bee business editor David W. Hill can be reached at dhill@modbee.com or 578-2336.
To see more of The Modesto Bee, or to subscribe to the newspaper, go to http://www.modbee.com/.
Copyright (c) 2009, The Modesto Bee, Calif.
Distributed by McClatchy-Tribune Information Services.
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