Not Confident About Consumer Confidence

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The big news today, is that consumer confidence got its highest reading in April since last September. Good news to be sure, but I would be careful in trying to read too much into these numbers.

For starters, the stimulus has really just begun taking effect. You might recall that last year, things got better for a while after President Bush's $600 stimulus checks arrived. The mere $152 billion size of that stimulus is dwarfed by February's stimulus package of $787 billion. So if Bush's little band-aid made a noticeable blip on the economic radar screen, imagine what Obama's giant staunch will do.

Like Bush's package, Obama's will likely slow the bleeding for a while. That's what we're beginning to see. After all, if $787 billion can't begin to stimulate the economy, then we are in very, very big trouble. The timing of the package will also help, as its benefit will be spaced out over a few years, instead of a one-time pop. The fact is, however, anytime you throw free money at people, they get happier, or in this case, more confident.

The problem is, eventually we have to realize that this money -- as well as the money attached to all of the bailouts -- was not really free. That's why, despite the fact that (as I write this) the DOW is up over 200 points, I'm unconvinced that good times are in the near future for U.S. companies. To any long-term investor, I think it's clear that we should not start popping the bubbly just yet.

And what's worse: as soon as things start to actually get better, taxes are going to have to be hiked to pay for all that spending. That will result in growth, consequently, being stunted. By flattening the recession curve of the economic cycle through so much government intervention, the following expansion curve of the economic cycle will also be flattened. That's why I still think growth may be unusually low (though not negative) for five or more years, at best. So even if you think these consumer confidence numbers represent a light at the end of the tunnel, that light might not be as bright as you think.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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