US consumer confidence falls – as world's rises

Eugene Hoshiko/AP/File
Consumers look at clothing at a Shanghai shop. Consumer sentiment rose five points between March and June, according to a new survey Monday.

American consumers are a finicky bunch.

Their confidence rose in the depths of the Great Recession this spring. Now, as the contraction eases, they're turning pessimistic again. Consumer sentiment fell for the second month in a row, The Conference Board reported Tuesday.

The decline is an important signal.

If consumers aren't confident, they're less willing to buy. With consumer spending making up roughly two-thirds of the economy, any rebound without consumers is likely to fare poorly.

"If this is a recovery, it is a very weak one characterized by frequent relapses," wrote Paul Ashworth, an economist with Capital Economics in Toronto, in an analysis. "The lack of any sustained and significant improvement in confidence is a big concern."

That decline in optimism stands in sharp contrast to the upswing going on in other major nations from Argentina to Indonesia (see chart.) From March to June, the Nielsen Global Consumer Confidence Index rose five points, with 23 nations posting an increase. Only the US and France (flat) and Germany and New Zealand (down 1 point) bucked the trend.

“In March, we were seeing the first signs that as far as the world’s consumers were concerned, the recession had bottomed out," said Jonathan Banks, Nielsen's business insights director, in a release. "Three months later, they’re starting to embrace the idea of recovery – which is a major turning point.”

So who is right? Will American pessimism spread – or adopt the rosier world view?

It's possible that both trends will continue. Consumer sentiment in the world's largest economy has a big impact on the global economy. But it is feasible that faster-growing nations like India, Brazil, and, of course, China are recovering faster than the US – and robustly enough to overcome any American drag.

This idea – called "decoupling" – has been raised before, debunked, and now is again getting some notice. The proof will come when those developing-nation consumers turn better sentiment into more spending.
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