Recession not real, but U.S. consumers still hurting

Higher gas prices will cost U.S. consumers about $100 billion this year, Conference Board researcher Kip Beckman says. (CBC)

The U.S. economy isn't technically in a recession, but many Americans feel like it is, says Conference Board of Canada researcher Kip Beckman.

"With gas prices surging above $4 US per gallon, it is not surprising that consumer confidence is at its lowest level since the early 1990s," he said in a news release Tuesday.

The gap between economic reality and consumer perception is based in the differing performance of the U.S. domestic and export sectors, Beckman said in the board's U.S. summer economic outlook.

The drop in the U.S. dollar and strong global demand are boosting U.S. exports, so "the export sector will ensure the U.S. economy does not slip into a prolonged economic downturn," he said.

But for U.S. consumers facing falling incomes, the picture is often grim because:

About 325,000 jobs were lost in the first half of the year.Higher gas and food prices are leaving consumers with less cash.The drop in house prices leaves people feeling poorer and those forced to sell are getting much less.

A dollar a gallon rise in gas prices, the approximate increase over the past year, costs consumers $100 billion a year, Beckman said. The 17 per cent drop in median house prices has sliced $3 trillion from homeowner's wealth — an average of $30,000 each — since May 2007.

The pressure on consumers has undercut their ability to boost the economy through spending, a traditional source of growth. Even the benefits from the U.S. government rebate cheques, which have helped spending this summer, could be eroded by higher gas prices.

And if state and local governments are forced to cut back as tax revenues drop, the consequent layoffs will further weaken consumer spending. And interest rates may rise next year as the central bank turns to fighting inflation, he said.

The result is consumer growth that will lag the U.S. economy as a whole for the next two years. But the U.S. economy will grow by 1.8 per cent this year and 2.4 per cent in 2009, Beckman said.

For the unemployed and foreclosed, however, "it certainly feels like a recession," he said.

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