Election Section

There is something to be explained about the popular measurements of consumer confidence. A lot, perhaps, but a beginning would be to explain why people won’t buy a refrigerator but will buy a stock. 

The latest consumer attitudes survey from the University of Michigan indicates two-thirds of consumers believed the economy was in recession in April – one of the worst levels since 1992, when it really was. 

Buying attitudes were said to have declined for homes, appliances, cars, furniture and home electronics – and other studies back this up. But decline is relative, as in declines from extreme, unsustainable highs. 

Almost simultaneously with the consumer confidence report came the surprising news that the economy grew at a 2 percent annual rate during the first quarter, twice as fast as had been anticipated. 

Remember, this was a three-month period during which the word recession was used by officials and commentators almost every day – enough times you might say to brainwash even the most stubborn consumer. But consumers held out, perhaps as long as they could under the dire circumstances being expressed by so-called experts. Car sales and home sales remained near record highs, and confidence even began to rise. 

Now, apparently it has fallen again, even as other indicators suggest the worst might already have occurred, leading to the reasonable suggestion that consumers might be reacting to events rather than forecasting them. If things really are as bad as I’ve been reading, the consumer can be imagined thinking, then I had better get in agreement with the crowd. 

This, however, does not seem to apply to investors, whose growing numbers in this day and age include a large segment of ordinary consumers, the same consumers who are now said to be worried about the future. If so, the worries hardly show up in the trading statistics. After one of the worst crashes ever, and certainly the worst in terms of the number of investors directly involved, optimism remains. Investors don’t make plans to spend their money on what is past. They spend because they believe that the companies they spend on will do better in the future than they’re doing now. Right now, they are eager to spend. 

Inflated expectations, of course, are what Federal Reserve chief Alan Greenspan had in mind when he referred to irrational exuberance. In the long term, stocks might average 11 percent, but they can experience violent downturns in the meantime. Eleven percent can disguise much interim pain. 

The consumer-investor, however, knows at least a bit about pain, having seen mutual funds and 401(k)s decimated along with glorious plans for the future.  

John Cunniff is a business analyst for The Associated Press