Tuesday, May 26, 2009

And The Rally Goes On!

A couple of important pieces of economic news today.  First off, consumer confidence had a huge jump today. Consumer confidence is important because the higher it is, the more likely it is that consumers, who make up 2/3s of the economy, will spend money, helping to grow the economy. Remember, it is a lack of confidence that is hurting this economy. Unemployment is up about 3 or 4 percent from the average unemployment rate. However, you see the revenue in business fall far more than just 3 or 4 percent. Why? It is because once people see someone get laid off, they automatically think that they might get laid off. It is this fear of getting laid of that makes everyone stop spending money because everyone wants to save just in case they are going to lose their job. That is why the damage in the economy is a far greater percent than the 3/4% increase in unemployment. So when confidence goes up, that means that fear of losing your job is going away. The hope is, if confidence goes up, people will start spending more and not hoard their money in fear of unemployment. So while the confidence has gone up, which is a great sign, we will have to see if that confidence actually translates into more spending. 

The second piece of news was the Case-Shiller Home Price Indices, showed a huge drop in home prices at a record annual rate. While some people thought this was bad news because it showed more problems in the housing sector, I think it is beneficial. First off, we need prices to go down so that housing becomes more affordable which will then drive the housing market back up. Second, the prices were from the first quarter, which was Jan, Feb, and March. The great rally in the stock market began towards the middle of March, meaning that these house prices were before the rally started. So they are pretty far behind lagging indicators.

Both pieces of news were positive in my eyes. Lets hope it can continue this week.

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