Experienced investigators know this: no matter how smart people are, no matter how tough or well-prepared, if you can get them talking, you’ve got them.
The more someone talks, the more likely it is that they will say something that they will regret. It doesn’t have to be classically stupid or self-incriminating. It might simply reveal that some explanation — an alibi, or a reason for some behavior — hadn’t been thought through.
We don’t have to spend our lives in interrogation rooms to know this. We need no more evidence of this than the routine news reports of such things as the daily stock market results or the monthly releases of data on jobs, income and other key factors in our economy.
The factual content of these reports is excellent. No country in the world, or in history, has ever done it better or more accurately.
But then we go on. These reports are almost always followed by quotes from experts explaining why the data went up or down. That seems to satisfy our need to know why, but it doesn’t mean that it is correct.
The recently released Commerce Department data on consumer income and spending in April provides a lesson in the risks of saying more. The basic facts were that consumer income was up, but spending was flat. And since savings equals the net difference between the two, consumer savings went up for the month.
Since there were no major changes in incentives, experts said that the rise in consumer savings reflected an increase in worry and a decline in optimism — both of which seem plausible, given the economic environment.
Plausible or not, though, there are aspects that raise at least two questions. The first is, “Why April?” The month of April actually had more good news than bad. The economy was picking up, which was reflected in consumer incomes, and much of the bad news did not hit the streets until May.
The second question is why we didn’t see any change in consumer attitude reflected in the survey data. With the release of the May report, the Conference Board data shows that April was the middle month in what has now been a three-month upswing in the Consumer Confidence Index. If consumers were anxious or unhappy, they certainly concealed it from the Consumer Confidence Survey people, not just in April, but in May, too.
At bottom, we don’t have a very good explanation of why consumers decided in April to sock away a little more of their money. But as it turns out, it probably wasn’t a bad idea. The news, economic and otherwise, took a turn for the worse in the second half of May, but since the Consumer Confidence Survey is taken in mid-month, it was probably not reflected in consumer attitudes.
Assembling all of this information, along with the questions we don’t have answers to, into a coherent model of some sort and using it to forecast what the economy will do isn’t a job for the faint of heart.
Both former New York Yankees catcher Yogi Berra and physicist Niels Bohr apparently had the same thoughts about forecasts. At least, it would seem so because the same quotation has been attributed to both of them: “Prediction is very difficult, especially if it’s about the future.”
With that in mind, if the Middle East, North Korea and the oil spill situations don’t spin out of control, what we can say about American consumer behavior is this:
It will be some time before most consumers in the U.S. are significantly affected by the oil spill now threatening the Gulf Coast states.
The worst of the pernicious effects of our “Deficit Days” spending jamboree will probably be delayed by the financial turmoil in Europe. The U.S. dollar will remain the world’s reserve currency, at least for the next few years, and this will encourage stability in consumer spending patterns.
The delay in downstream deficit effects will likely allow lower interest rates to continue, which will mean no sudden growth in incentives for consumer savings, something that will also tend to stabilize household spending.
It is more of a picture than a forecast. And overall, while there certainly have been more attractive economic environments to work with, it is not a bad picture. In the longer run, of course, we’ve got our work cut out for us. Forecasting that is easy.
James McCusker is a Bothell economist, educator and consultant. He also writes a monthly column for the Snohomish County Business Journal.
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