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Consumer Confidence Falls

Consumer confidence, a widely quoted figure showing the state of the economy, fell sharply in May, according to the Conference Board. Jitters about the global economy and the slow pace of hiring in the US accounted for the reduction. It was the biggest lapse on consumer confidence in the past eight months.

The Conference Board says its Consumer Confidence Index now stands at 64.9, down from a revised 68.7 in April. It was the biggest drop since October 2011.

Consumers’ appraisal of present-day conditions deteriorated in May. Those claiming business conditions are “bad” increased to 34.3 percent from 33.2 percent, while those saying business conditions are “good” decreased to 13.6 percent from 15.5 percent.

“Consumers were less positive about current business and labor market conditions, and they were more pessimistic about the short-term outlook,” said Lynn Franco, director of economic indicators at The Conference Board. “However, consumers were more upbeat about their income prospects, which should help sustain spending.”

This was well below expectations, and it indicates a possible slowing in an already modest recovery.

To be sure, long-term factors argue against a bold recovery. Political dysfunction amid a looming fiscal cliff could sharply drag the economy down at the end of the year. A renewed hostage crisis over the debt limit would do the same thing. The crackup in Europe cannot help but have an impact on US economic growth. Rising student loan debt and its effect on the economy has begun to gain attention. While many analysts are invested in the notion of a bounce-back in housing, the recent data still shows flat or dropping prices, and there’s much to be desired on the statistical validity of the more positive numbers. In reality, communities are ravaged by the wreckage of the foreclosure crisis, five years after its beginning. The Fail Whale trades by JPMorgan Chase showed the continued risk embedded in our system of Big Finance, and how that could result in future systemic meltdowns.

If I were a consumer – oh wait, I am! – I wouldn’t have a whole lot of confidence in the economic situation either. What this means for the Presidential election, though that’s probably how this news will get discussed, is irrelevant. The truth is that we’re in the fourth year of a recovery from the worst recession since the Great Depression, and there’s no reason to believe that we’re in a position to prosper and reverse the worst effects of high unemployment and slow economic growth.

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David Dayen

David Dayen