Reuters reports that the preliminary University of Michigan Consumer Sentiment Index for November has fallen to 75.0,its lowest level since October of 2005. Economists expected a reading of 80.0. The index measures how consumers feel about their personal economic situation and the future prospects for the economy generally.
The final figure for November will be released at the end of the month.
What this means is that consumers will likely spend less in the coming months -- the last quarter of the year. The holiday season makes or breaks most retailers and this year is going to be tough. Consumers will be highly selective in their purchases, especially as they choose toys, hoping to find safe ones. This will also mean weaker car sales.
Higher energy costs, less home equity, and tighter credit all mean less consumer spending.
This week, Fed. Chair Bernanke said the national economy will get worse before it gets better, but stopped short of saying recession was inevitable. He can't predict recession. But "far worse" from where I'm sitting sure looks like recession.
Here in Michigan, we have been feeling the pain for a while. "One state recession" has been the mantra of certain analysts for months. And it's a hot potato we'd be happy to toss.
Automakers expect the weak housing market and credit crunch to affect sales in the last quarter of the year. What happens nationally happens in Michigan. What affects the auto industry rocks the economic foundation of Michigan even though we are frantically working to diversify our auto-centric economy.
This week, Dave Cole, chairman of the Center for Automotive Research, had a positive assessment for General Motors' prospects. He says they are making necessary changes to become profitable in North America. “Last year, GM took $9 billion out of structural costs of operating the business, the value of that was about $2000 per vehicle and this latest labor contract is worth about $1000 per vehicle.”
“They are in the process of dramatic restructuring and the fruits of that are still down the road. If the economy softens next year, that will put it off a little bit,"Cole said. “They basically have fixed the company and planted the seed, but the harvest is ahead.”
How far ahead is the unanswerable question..