Devoted to Managers and those that seek to improve their management skills

A Reuters/ University of Michigan survey, found that consumer confidence has reached its lowest level in 16 years, as the consumer sentiment index fell to 69.6 as of the middle of February. Down from the 78.4 measured in January 2008. That's the lowest reading since the 68.8 of February 1992.

Most of this is the result of the endless media coverage of lower housing prices, higher energy and food prices, and the continuing speculation on whether there will be a recession.

There were opposite responses to the news, as U.S. economist with High Frequency Economics, Ian Shepherdson said, "This is just horrible. It seems increasingly likely that domestic demand will fall outright; only exports are preventing full recession, for now."

Shepherdson seems to be overresponding to me. To say if people weren't spending money on our exports, there would be a recession, is like saying if people weren't buying, there would be no sales. Of course if people stopped buying things from us it would have an impact. But they are! So that comment is somewhat silly to me.

This is where the drop in value of the U.S. dollar is helping out the economy at this time.

At the same time, Mike Englund, chief economist for Action Economics, had a more balanced view, saying, "We have yet to see whether this new leg downward in confidence in February will take a chunk out of spending." He added that "sales have still largely paralleled income."

In other words, people are pretty much spending their money, although cutting back in certain areas. That's why retail sales surprised everyone by the 0.3 percent growth in January, after declining by 0.4 percent in December. Most of that was related to gasoline, autos and clothing increases, while other retail categories remained flat. People seem to be willing to spend, but they're prioritizing their spending, rather than indiscriminently throwing their money around.

Another finding of the UMich survey was the expectation by consumers that inflation would continue to rise, increasing by 3.7 percent in February, up from the 3.4 percent in January.

All of this means that the practical response to how consumers feel hasn't been decided yet. Consumers are cautious and tightening up on some spending in certain categories, while at the same time willing to spend in other, narrow areas.

It seems they haven't decided which way they're going to go at this time; although we can count on it slowing down. It's a matter of how much, not if they're going to slow their spending.

What President Bush is hoping is the economic stimulus package he signed, will not only give a temporary boost to the economy, but will help change the downward spiral of the confidence consumers have at this time. The confidence level eventually will be reflected in their spending habits. That's probably more important than the temporary push the economic stimulus can only give.