The Conference Board's Feb. 27 report on consumer confidence provided the latest evidence that the outlook is worsening. That's the good news. The bad news is that consumers expect things to get a lot worse in the next six months. But she admits there is a danger that, if consumer expectations become too negative, it could become a self-fulfilling prophesy. There is a risk here that the consumer will really pull in his horns and drive the economy into recession.
Many economists now see a deeper, more prolonged dip.
He cites high levels of consumer debt, a sharp drop in the personal savings rate, and an overhang of information-technology spending. Ezrati admits that underestimating the impact of the bear market on consumer spending is where he went wrong in his earlier forecast for a quick economic rebound this year. Rising energy prices, which eat into the money consumers have left over at the end of each month to spend on discretionary purchases, aren't helping matters. And, as The Conference Board's numbers show, the public doesn't expect big pay raises. Smith thinks that while monetary policy can wake up a growing economy, it isn't as effective at recharging a slowing one.