Don’t be fooled by the false economic recovery

No reason to put any weight on consumer confidence numbers. A fake recovery can look like a recovery until it doesn't…

Don't be fooled by the false economic recovery 

By Heidi Moore, guardian.co.uk

After five years of unemployment, government deficits and financial struggle, every American wants to call it a recovery and call it a day. That's why some optimistic economic data this week seem to have messianic importance, in the ever-optimistic belief that higher consumer confidence and rising home prices will deliver us from economic evil.

But if evil has one power, it is the power of illusion, to mask reality. And, in this case, that is also the power of the positive economic data.

Take the consumer confidence numbers, which are measured every month by the Conference Board and act as one of the more foolish hinges on which to hang our hopes. Consumer confidence in May jumped to 76.2, on a scale of 100. In the popular interpretation, that indicates that consumers believe the economy is improving.

It's also an object lesson in the silliness of believing in the validity of consumer confidence. As history shows, countries and people have long been confident when they had no reason to be.

For instance, the consumer confidence numbers themselves are not as confident as they seem. As Michael Santoli at Yahoo Finance points out, the average consumer confidence number during a recession is about 79, and even with our recent boost, we're still lagging below that low bar.

There is more evidence that Americans lack psychic economic ability. The May data shows the highest measure of consumer confidence since February 2008. That was a time in which a housing crash was already well underway, and only a month before before Bear Stearns collapsed and confirmed that the country was in a financial crisis. At least six months before that, in August 2007, three major hedge funds invested in subprime real estate had to be bailed out by the French bank BNP Paribas, and the Federal Reserve and other central banks started pumping $300bn into the global banking system. Any collective confidence back in February 2008 was foolish and unwitting of the crisis that had already started in the higher rungs of finance.

Similarly, the idea of a strengthening recovery is out of step with some bubblicious activity, including the dubious and sudden rise in housing prices…

Keep reading: Don't be fooled by the false economic recovery | Heidi Moore | Comment is free | guardian.co.uk.

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