September 18, 2010

U.S. consumer confidence & deflation

POLITICS - Consumer confidence in the United States dropped to an one-year-low in August. 68.9% of Americans in August thought the economy is getting worse and are cutting back on their spending. In July Americans 66.6% said the economy was getting worse.

This pessimistic forecast is combined with unemployment at a 26-year high. Staff reductions at major corporations during the American Recession (or Great Recession) may take years to recover.

Worse there has begun to be signs of a depression. Large store chains are discounting merchandise in an effort to lure shoppers. When costs drop (deflation) combined with a prolonged recession that means we're in a depression.

At the moment the inflation/deflation rate (aka the consumer price index) is holding steady at 0.3%. This stagnation is a dangerous sign that deflation and depression may be on its way. Most of that 0.3% inflation rate is actually the result of more expensive gasoline... the rest of the U.S. market is seeing deflation of prices.

So deflation is definitely happening in the USA... but the fact that we may be in a depression hasn't sunk in yet because GDP is still up for the moment and there are signs of both recovery and stagnation. The direction the economy is going, up or down, is anyone's guess.

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