This is the summer of our discontent. Only 14 percent of us are satisfied with the way things are going in the United States, the lowest figure recorded by Gallup’s pollsters since they began asking that question almost 15 years ago.
Consumer confidence is at its lowest level in 28 years, according to the respected Reuters/University of Michigan survey. And not many Americans are expecting things to improve soon.
“Consumers’ economic outlook is so bleak that the Expectations Index has reached a new all-time low,” the Conference Board reports. High gasoline prices, soaring food costs and a deteriorating jobs market inevitably produce gloom, from which there is no escape.
Hop in your car to get away from it all, and very soon you are pumping $4-plus gasoline into the tank of a vehicle designed more for safety and comfort than for fuel efficiency.
Try to get on a plane, and you find that most flights are full, fares are up and your air miles are virtually useless as the number of seats allocated to freebies shrinks.
Which might explain why sales of flat-screen television sets at Wal-Mart increased in June by double digits: Staying home is an increasingly attractive alternative.
The proud new owners of those flat-screen TVs will have to stay away from the 24-hour financial news channels if they are to find solace in their new acquisition.
Share prices are falling, earnings expectations are being lowered and firms in the financial sector continue to scramble for new capital to offset write-downs of loans gone sour.
In this atmosphere, it is difficult for the shreds of good news to penetrate the gloom. The International Council of Shopping Centers reported that sales at stores open at least a year (“same-store sales” in the jargon of the trade) rose by 4.3 percent last month, with Wal-Mart recording a 5.8 percent jump, its largest in four years.
Because June is the second-most-important month for retailers — summer stock is cleared to make room for back-to-school items — this should be unalloyed good news.
It isn’t. Pessimists argue that the sales increase resulted from a combination of the $86 billion tax-rebate checks issued by the government so far pursuant to a program due to end next week, higher prices of food and gasoline, and that old favorite of retail analysts, the weather — warmer than usual and therefore good for getting summer clothes off shop racks and into consumers’ closets.
The two most powerful forces underlying almost all of the economy’s problems are the price of oil and the condition of the financial sector.
Bring oil prices down, and share prices will rise; revive the financial sector so that credit is again available to businesses and homebuyers, and the economy will revive. Unfortunately, it is not easy to forecast either of those important drivers of the economy.
The best we can say about the outlook for the price of oil is that in the short run it will continue to be affected by geopolitical events, such as an Israeli threat to Iran’s nuclear facilities, or the test-firing of a few missiles by the Iranians.
In the longer run, we are reduced to guessing about the balance of supply and demand. In a free market, higher oil prices would cause an increase in exploration and, eventually, available supply, and what is called “demand destruction” as high prices induce Americans and others to drive less, heat less and cool less.
But the OPEC cartel is capable of curtailing the amount of crude it allows to flow into the market, which might offset the beneficent effect of increased non-OPEC supplies and an easing of demand in developed countries.
The eventual outlook for the financial services sector is somewhat easier to predict. Shares of two of the biggest players, Fannie Mae and Freddie Mac, dropped almost 90 percent last week, and it took a government rescue package, cobbled together over the weekend, to restore calm.
Meanwhile, banks need to deleverage — raise more equity capital relative to their debt — to make up for write-offs of bad debts. Which they are doing. But market analysts are guessing that share prices of banks will fall further, before an eventual recovery at the end of 2009.
That makes it unlikely that at this time next year we will be experiencing the “glorious summer” celebrated by Richard III as he saw off his “winter of discontent”. But we might just have a merry Christmas. Or at least a less gloomy one.
