The Consumer Confidence Boom

German consumer confidence reached a 10-month high this month. Now a new WSJ/NBC poll shows that U.S. consumers are more sanguine than they have been in a year. The signs of a rebound in the way people view the economy that began in the 2011 shopping season have continued into early 2012.

The improvement is counterintuitive in some ways. The U.S. economy is still not good enough to add many jobs. The Federal Reserve expects unemployment to be no better than 8.3% in 2012. In Germany, consumers can look at the troubles of most of their neighbors and know they may have tax increases to help finance bailouts of these countries. Europe is as bad off as it was in the depths of the last recession, if not worse.

The improved view of the future may come from the survivors of the recession. They feared the loss of their own jobs for three years. Those who kept jobs probably will continue to keep them. Even with high unemployment, these people are part of the 90% or more who still work and make money. And, they work and make money in economies that are better, if only slightly. The recession may not be over for the unemployed. It may be over for many people who have kept jobs.

The reasons that the American outlook on the economy is better come from several sources. One may be that tax cuts that were in place throughout last year are still in place. Another may be that Americans have come to accept the drop in value of their homes. Those prices will not come back for years, if at all. But the shock of the steep fall in housing prices has had three years to settle in. Home equity is gone, but that is now old news. The same may be true of energy prices. The price of gas at $2.50 is two years in the past. Current prices of $3.50 a gallon are still better than the nearly $4 level of last summer.

Consumer optimism, to the extent it has returned, is probably based as much on an adjustment of expectations as anything else. It is not 2005 or 2006 any more, but it is not 2008 and 2009 either.

Douglas A. McIntyre