Will Consumers Stay High on the “Bin Laden Bounce”?

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The mass cheering over Osama Bin Laden’s death was, well, kind of weird. But even weirder (for Wall Street watchers that is) was that the stock market didn’t bounce on the news, especially since, as noted earlier on this blog, “Bin Laden has been a major contributor to the booming federal deficit, much more so than the federal bank bailout or the $800 billion in stimulus spending.”

But one place in the economy the “Bin Laden Bounce” did show up: consumer confidence. The University of Michigan’s U.S. consumer confidence index rose 3.7% this month, even as gas prices hit $4 a gallon. Consumers may be ignoring high gas prices in part because they’re not good at adjusting their spending habits when a big staple purchase rises in cost. But Bin Laden’s death was another welcome distraction from the glum economic news. The lift in May confidence numbers came mostly from consumers’ improving expectations about the future. The expectations index jumped 9.4%, even as consumers’ feelings about the present dropped 2.8%.

We’ve seen similar jumps in the past. Consumer confidence skyrocketed in January 2004 after the government nabbed Saddam Hussein. The question is will the jubilation last? Not likely. Once the euphoria settles and the media moves on, Americans too will go back to focusing on the daily grind. The White House is hoping to translate the “halo moment” from Bin Laden’s death into longer-term voter optimism on the economy for election day. But it’s going to take a lot more voter coddling to get the confidence uptick to last. The May confidence reading is still 6.6% lower than it was three months ago and far below its average of 86. And a New York Times/CBS News poll conducted after Bin Laden was killed found that, despite the uptick in Obama’s overall popularity, his approval rating on the economy dropped to its lowest level of his presidency. What consumers want most from Obama are jobs, and that’s something the death of Bin Laden can’t fix.

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