American consumers are feeling more carefree than they’ve been since just before the Great Recession. That attitude arrives just as analysts worldwide are fretting about the prospect of a new global recession.
European leaders are talking about contingency planning related to Greece leaving the eurozone and setting off a banking crisis that could harm the global economy. And the world’s growth engine, China, is slowing as it sells less to Europe and struggles with weak demand internally.
“Global markets are being driven primarily by European events and, to a lesser extent, by the evolution of the Chinese slowdown,” said Barclays economists in a report Friday.
The Standard & Poor’s 500 has dropped 7 percent since April 2, and European stocks are off 11 percent since mid-March.
“The near-term outlook for Europe appears bleak,” said Barclays economist Piero Ghezzi. And Fabrice Montagne of Barclays said that although Europe’s leaders last week “generated a degree of hope that Europe might develop solutions to improve its short-term growth outlook, we think these hopes are likely to be disappointed.”
In the Thomson Reuters/University of Michigan Survey of Consumers released Friday, consumers were more optimistic about jobs in May than the high reading in April. Confidence has been rising since last summer, when the economy slowed and the stock market dropped 17 percent amid debt concerns in Europe and the debt-ceiling fiasco in Congress.
Ironically, the same forces could be unleashed in the months ahead as Europe’s debt problems appear ready to explode, and as the U.S. approaches debate over a potential $500 billion tax increase.
Still, global weakness could make life easier on Americans by reducing gasoline prices. Amid economic weakness, demand for oil in Europe and Asia has declined, and oil and gasoline prices have fallen in anticipation of a further slump.
“It is unusual for gasoline prices to decline heading into the peak driving season (from Memorial Day through the Fourth of July), but that is just what has occurred over the past several weeks,” said Deutsche Bank economist Joseph LaVorgna. Average prices peaked nationally at $3.94 a gallon in the last week of March and steadily declined over the next seven weeks to $3.71.
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If gasoline drops to $3 a gallon, that’s the equivalent of a $65 billion tax cut to consumers. On Friday, May’s employment numbers will provide a deeper view of how households are faring.