This first slide explains in a nutshell the reason we had such a deep recession. Consumer confidence hit an all-time low, lower than it has been in the last 40 years. Once their confidence crashed, consumers quit spending money and the ripple effect of the recession started. This historically deep crash of confidence subsequently caused the deepest recession we have had in a long time.
The corollary to the crash in consumer confidence was the increase in the household savings rate. This is good news, but again it points to the fact that the consumer stopped spending money. It’s not that consumers didn’t have money to spend; they were simply choosing to save it instead.
This slide explains a portion of the lack of job growth after the recession. The productivity of the American worker continues to increase at an impressive rate. This allows business to grow without adding employees. Once businesses realized they could make-do without the extra employee burden, they became hesitant to hire back and choose to ride the productivity wave.
This is probably one of the most significant risks to the recovery and consumer confidence. Consumers have a lot of their net worth tied up in their homes. As home prices increase, consumers feel wealthier and are freer to spend. Again, it has to do with the confidence of the consumer. While it does appear that home prices are forming a bottom, if home prices were to drop again it would not bode well for the economy.