Tuesday, April 15, 2008


General Electric is one of those bellwether companies whose size and breadth of markets provides a gauge, not only on the health of America’s economic engines, but on the world’s. The announcement of a year to year drop in profits was a surprise to enough GE investors that its shares retreated on Friday dropping the market capitalization by approximately $45 billion. It shouldn’t have been much of a surprise given the company’s profit performance has historically been so dependent on commercial financing operations. There it is nevertheless, forecasting a flat year, with the overall markets listening intently and adjusting themselves downward ever so sympathetically. Good news?

The adjustments we are witnessing through all indexes are actually a strong statement being made by consumers. American consumers are taking action, and the markets are attentively listening. Many experts claim that the index of consumer confidence dropping to a 26 year low is an indication that America has already entered a recession. Further foreboding signs on the road include the ever frightening potential of rising inflation, rising gas prices, rising food prices, and tightening job markets. If that isn’t enough prejudice on the future, watch out for the Euro, it augurs to overtake the USD as the preferred hard currency. So where along this road is the good news?

This whole road, starting with the consumer already tightening the belt is good news. This is the good news for the long term health of what is and will remain the most vital and vibrant economy in the world. The American consumer has taken control. That control starts at home, and is already visible with a tapering of the out-of-control spending by America that the world’s economy has been applauding for too long. This is the same consumer that most experts have considered incapable of demonstrating restraint in spending. The consumer is seeing the road ahead and is exhibiting caution. As the Federal Reserve slices interest rates further, American consumers are being diligent on where their precious incomes are deployed, and they are being apprehensive of further borrowing. That isn’t good news, that is great news. This is not consumer weakness, it is consumer strength. The U.S. economy will take a breather since consumer spending is 70% of the U.S. economy, and even if that lull takes a year or two, it will bode well for the long term recovery of the world’s most powerful economy and primary engine. It will also dampen the predicted levels of inflation. Of course the American consumer will continue to spend, but that spending will be tempered, and we will hopefully discover an increase in savings.

This is an attitude shift that will lead most consumers to continue considering each spending decision and its necessity very carefully. It might even lead to consideration being given to other impact or bounce that their spending might have in the broader context of their lives including their environment. That is a major alteration in American perspicacity that both Congress and the Administration will have no choice but to pay attention to. Consumers are carving a path their government will have to follow in kind. The pressure on the political system by the consumer will also lead to broad measures widely distributing opportunity through greater attention dedicated to education and enhancing its funding. Prospects for the future look bright. … And the Euro? America’s ingenuity and strength will maintain the dollar’s dominant position.


  1. Interesting train of thought.

    BTW, FYI -

    Main Entry:bellwether
    Etymology:Middle English, from belle bell + wether

    1 : a belled wether or sheep
    2 : one that takes the lead or initiative : LEADER *distinguished for his outstanding work as a bellwether bomber pilot R.G.Hubler & J.A.DeChant* *California, traditional bellwether of the canning industry

    -(C) Merriam-Webster Unabridged

  2. I see some pain ahead for the American consumer. That said I think you are right that the belt tightening hopefully will stop excessive borrowing and speculation. I agree that moving back towards a saver capital building society will help our country in the long term. Hopefully this will force our governments to do the same. This is where I am most sceptical though. I was born in 1973 and governments have never in my lifetime managed to balance a budget let alone tighten their belts. I fear it may be too late to avoid stagflation induced by the governments excessive spending. Consumers can't afford higher taxes. Governments refuse to balance budgets. Both parties suck.

    So while consumers getting realistic and also spending their money on important things is good and healthy how bad will things have to get before the demand the same of their government

  3. You're right about the apparent difficulty with balancing budgets, however if the electorate changes perspective and more importantly ATTITUDE, Congress will have no choice but to pay attention and follow suit.

    An angry electorate is a powerful force.

  4. Yes, the consumer is making a strong statement. But, with all due respect, I think that statement is, "I'm broke and leveraged to the hilt, and no one will lend me any more money!"

    What is undoubtedly a long-term step in the right direction with regard to consumer spending will cause immense pain in the short run. The US economy has been a junkie addicted to debt and, in fact, absolutely dependant upon that debt for economic growth. One man's expense is another man's revenue, so every dollar the consumer doesn't spend is a dollar in revenue that overly leveraged corporations are NOT going to get to stay above break-even.

    The change in consumers is, I think, a change in psychology from optimism to pessimism, from oppulence to utility, from spending to not spending. The practical result of this is that it won't take long for many companies to fold under their mountains of debt. This will increase unemployment, which will further reduce spending, which will increase unemployment, ad infinitum.

    Yes, the government will hear a loud statement from the heartland, but I'm afraid that, a la the New Deal 1930s, that statement will be, "Help! We need some refief!"