The Stagnation Two-Step:
Pessimism and Spending
Richard Curtin
Research Professor and
Director Surveys of Consumers
University of Michigan
Chart 1: Consumer Sentiment Falls Back Toward
Recession Lows
Near All-time
recession lows
2011:1 = 73.1
2011:2 = 71.9
2011:3 = 59.6
2011:4 = 62.6p
2011
All time Records: Peak = 112.0 (Jan 2000); Trough = 51.7 (May 1980)
Last cyclical low = 55.3 (November 2008); Recent low = 55.7 (August 2011)
Chart 2 : Sentiment Signals Stagnating GDP
Growth During Year Ahead
Largest Post
1954
1958
1974
1975
1980
1982
1991
2009
WWII Declines:
-0.7%
-1.0%
-0.5%
-0.2%
-0.2%
-1.9%
-0.2%
-3.5%
Chart 3: Current Financial Situation of
Consumers Remains Dismal
Record Lows
2011
Chart 4: Income Changes Have Remained Negative
for Longer Than Ever Before Recorded
2011
Chart 5: Diminished Personal Financial
Prospects Expected During Year Ahead
2011
Chart 6: Income Prospects Remain Grim:
Majority Expect No Gains in Nominal Incomes
Record Lows
2011
Chart 7: Real Home Prices Expected to
Decline Over Foreseeable Future
(Three month moving averages)
Chart 8: Adequacy of Retirement Savings
Remains Low
(Change in Probability of a Comfortable Retirement
Given Current Assets Among Those Under Age 65.)
%Higher - %Lower + 100
Chart 9: Declines in Household Debt Main Reason
for Increase in Saving Rate
2011:2 = -0.6%
First time absolute contraction of debt
Chart 10: Mortgage Debt Declines Partially
Offset by Increases in Consumer Debt
Mortgage Debt
2011:2 = -2.4%
Consumer Debt
2011:2 = 3.4%
Chart 11: Mortgage Debt Still Excessive
(Debt as a Percentage of Personal Disposable Income)
Mortgage Charge offs:
2011:2 = 1.68%
Peak: 2009:4 = 2.82%
Avg. 1991-2007 = 0.15%
Mortgage Delinquencies:
2011:2 = 10.53%
Peak: 2010:1 = 11.22%
Avg. 1991-2007 = 2.24%
Total
Mortgage
Consumer
Chart 12: Personal Saving Rates
Recessions: 10-12% Savings
Long Term Average = 7%
Extraordinary Wartime Savings Acted to Reverse Depression Losses
Saving
1940
1941
1942
1943
1944
1945
1946
Rate:
5.7%
12.2%
24.1%
25.6%
26.1%
20.4%
9.6%
Chart 13: One-Year Outlook for National
Economy Remains Quite Negative
Record Lows
2011
Chart 14: Five-Year Outlook for
National Economy Remains Grim
Record Lows
Decade Long
Decline
2011
Chart 15: Government Economic Policies:
Lost Confidence in Obama’s Policies
2011
Chart 16: Loss of Confidence in the
Federal Reserve
Nov-Dec Oct–Nov
1987
2008
Sep-Oct
2009
Oct–Nov Oct–Nov
2010
2011
Greater or Unchanged
Confidence in Fed
76%
41%
49%
49%
37%
Less Confidence in Fed
19%
57
49
49
61
5
2
2
2
2
100%
100%
100%
100%
100%
DK; NA
Total
Chart 17: Large Impact of Loss of Confidence in
Economic Policies on Consumer Expectations
Oct–Nov 2008
(October – November 2011)
Share of
Households
Index of
Consumer
Expectations
Lost confidence in Obama and the Fed
41%
39.1
Lost confidence in Obama but not Fed
16
49.4
Lost confidence in Fed but not Obama
20
63.3
No loss of confidence in Obama or Fed
23
74.3
Total
100%
Chart 18: Year-to-Year Growth in Total Non-Farm
Employment Nearly Reaches Prior Peak
October 2011 = 1.2% y/y growth
October 2011: +80,000 Jobs
Chart 19: Consumers Focus on Job Losses,
Obama Focuses on Job Gains
(Total nonfarm employment in millions)
8.7 million
jobs lost from
Dec 2007 to
Dec 2009
(average
monthly
loss = 350k)
Jobs regained since start 2010:
2.2m or about 100k per month
Chart 20: Consumer Reports of News about Jobs
And Changes in Total Nonfarm Employment
(Three month moving averages)
Chart 21: National Unemployment Rate
Oct 2011: All workers
Oct 2011
All Workers = 9.0%
Married Workers = 5.8%
All
Married
Decade Averages:
1950s = 4.5% 1960s = 4.8% 1970s = 6.2% 1980s = 7.3% 1990s = 5.8% 2000s = 5.5%
Chart 22: Consumers Expect No Improvement in
Unemployment Rate During Year Ahead
Chart 23: Unemployment Decomposition: Ratio of
Employed to Labor Force Participation Rates
Participation Rate
October 64.2
Peak = 67.3
Peak = 64.7
Employment Ratio
October 58.4
Unemployment rate = 1 – (58.4/64.2) = 9.0%
Chart 24: Employment Population Ratios:
Men and Women Age 25 - 34
Nearly 3 years at all time lows
Men
October = 80.0%
Women
October = 67.0%
Under age 25 (October)
Men = 47.3% Women = 45.6%
Both at near record lows
Chart 25: Employment Population Ratios:
Men and Women Over Age 55
Men
October = 43.3%
Employment Ratios (10-year pt. change)
Men
Women
65 – 69: 34.4 (+4.7) 25.8 (+5.9)
70 – 74: 24.8 (+6.0) 13.4 (+2.2)
75 +: 10.0 (+2.3) 5.4 (+1.7)
Women
October = 32.9%
Chart 26: Unemployment Not Growth in Real
Personal Consumption Defined Great Depression
Surge in Consumption
During Depression
Negative Consumption
in five of eleven years
Unemployment Rate Defined Great Depression
8.9% 15.9% 23.6% 24.9% 21.7% 20.1% 17.0% 14.3% 19.0% 17.2% 14.6%
Note: Unemployment in 1929 = 3.2%
Chart 27: Modest Growth in Personal Consumption
Expenditures Expected in 2012
Declines in PCE:
1974
1980
2008
2009
-0.8%
-0.3%
-0.6%
-1.9%