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Home | Uncategorized | ‘Extraordinary Stimulus’ Needed to Lift Consumer Spirits
Hudson & Marshall
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‘Extraordinary Stimulus’ Needed to Lift Consumer Spirits

As the economy struggles toward recovery, consumers are widely disappointed with the government, reluctant to spend, and harbor a somewhat pessimistic outlook toward future incomes, according to the Thomson Reuters/University of Michigan Survey of Consumers, which has observed consumer sentiment since 1946. Researchers say it's going to take an ""extraordinary stimulus"" to restore healthy economic growth.

As the economy struggles toward recovery, consumers are widely disappointed with the government and reluctant to spend, according to the Thomson Reuters/University of Michigan Survey of Consumers, which has observed consumer sentiment since 1946. Consumers harbor a somewhat pessimistic outlook toward future incomes and are demonstrating ""lower work motivations,"" according to survey results.

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In order to restore healthy economic growth, ""[e]xtraordinary stimulus policies are still needed,"" ""said Richard Curtin,"":http://www.sca.isr.umich.edu/fetchdoc.php?docid=48864 director of the survey, at the Economic Outlook Conference in November, prior to the Federal Open Market Committee's ""decision"":http://www.themreport.com/articles/fomc-votes-for-cuts-in-stimulus-2013-12-18 to begin tapering stimulus spending in January.

In fact, Curtin called the Fed's stimulus spending ""welcome"" and said, ""Tapering those efforts due to fears of inflation is unwarranted.""

Two-thirds of the economy consists of consumer spending, which has been meager since the recession, according to Curtin.

During the recession, while the government set to work to stimulate spending, consumers dug their heels in, making it their top priority to ""reduce their indebtedness and rebalance their finances,"" Curtin said.

""Although the aggressive Fed policies have finally sparked gains in household wealth, wage and job prospects have remained stagnant,"" Curtin said.

Rising home prices and stocks have had a positive effect on some households, but most of the gains are currently limited to those in the top rungs of the economy.

Thirty-eight percent of homeowners reported a rise in their home's value over the past year, while 15 percent said their home's value declined. Higher-income [COLUMN_BREAK]

households were more likely to fall into the 38 percent reporting gains, according to Curtin.

The gains in stocks and home values ""were the anticipated and desired outcomes of the Fed's policy actions,"" Curtin said.

However, Curtin said the policy fell short in improving consumer outlook.

""Indeed, consumers still view the outlook for their finances as not too different than at the recession lowpoint,"" he said.

A widespread belief that incomes will not rise as much or as fast as they once did translates to more cautious spending.

Previously, the Fed said stimulus spending was necessary as long as unemployment remained above 6.5 percent.

As of November, unemployment stood at 7 percent, just above the threshold but down significantly from the 10 percent peak in 2009.

However, the perceived improvement in employment is largely a result of a declining labor force rather than an actual increase in employment.

Curtin does concede that a portion of the declining labor force is the result of retiring baby boomers. The Brookings Institute says half the decline can be attributed to retirees.

While in the past consumers have looked to the government to help solve economic problems and ensure economic growth, Curtin says today's consumers are frustrated with their government.

""To say that consumers were disappointed by the inability of the government to reach a settlement is a vast understatement,"" Curtin said in regards to the federal budget and debt ceiling debate.

""For many consumers, the government has become part of the problem rather than part of the solution,"" he continued.

While conceding criticism for the government's policies is ""hardly new,"" Curtin suggested today's situation is unprecedented in that ""prior expressions of discontent prompted changes in economic policies which successfully reinvigorated the economy.""

""This has been the longest stretch of time in which no action by the government was viewed as an effective countermeasure to the economic problems faced by most consumers,"" Curtin said.

Hudson & Marshall

About

Krista Franks Brock
Krista Franks Brock is a regular contributor to DSNews.com and TheMReport.com. She previously served as managing editor of DS News magazine. Prior to joining DS News, she was managing editor of Southern Distinction, a regional lifestyle magazine based in Athens, Georgia. She is currently a freelance writer and editor for various online and print publications. She holds degrees in journalism and art from the University of Georgia, where she also earned a minor in Spanish.

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