We've seen some positive and some negative economic reports over the past couple of months, but the indicator that we should probably be most concerned about is consumer confidence. Unless Americans spend more money, firms won't hire more aggressively. So if consumers are feeling pessimistic, the already weak recovery could be doomed.
Today, the Conference Board reports that its Consumer Confidence Index was essentially flat in September -- remaining near August's painfully low level. Gallup's confidence index, however, provides a daily estimate, which helps to show the trend better. If you compare the past few months of 2011 to the same period over the past few years, the picture is grim.
Here's a chart showing Gallup's Economic Confidence Index over for the past three years, with each year getting a separate curve:
You might recall that 2009 was the year when unemployment rose past 10%. According to Gallup, current confidence levels aren't far from that year's low points. And you can also see from the chart that July through September of 2011 looks much worse than the same period over the past two years.
At this point, weak sentiment is beginning to look like a trend, rather than a blip that could quickly resolve itself. We now have a couple of solid months of very weak confidence.
As we move closer to the holiday season, this trend must have retailers concerned. If you look at the fall months for the past two years, sentiment was still bad, but much better than it has been recently. And of course, if Americans to spend less in the second half of 2011 then economic contraction will probably follow, since consumer spending is such a huge part of GDP. If there's any reason to fear a double dip, this is it.
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