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Th e M Rep o RT | 61 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET the latest 'extraordinary stimulus' needed to lift consumer spirits As the Fed begins cutting down its asset purchases, one commentator says the stimulus is necessary. a s the economy struggles toward re- covery, consumers are widely disappointed with the government and reluc- tant to spend, according to the Thomson Reuters/University of Michigan Survey of Consumers, which has observed consumer sentiment since 1946. Consumers harbor a somewhat pessimistic outlook toward future incomes and are demonstrating "lower work motivations," according to survey results. In order to restore healthy economic growth, "[e]xtraordi- nary stimulus policies are still needed," said Richard Curtin, director of the survey, at the Economic Outlook Conference in November, prior to the Federal Open Market Committee's deci- sion to begin tapering stimulus spending in January. In fact, Curtin called the Fed's stimulus spending "welcome" and said, "Tapering those efforts due to fears of inflation is unwar- ranted." Two-thirds of the economy consists of consumer spending, which has been meager since the recession, according to Curtin. During the recession, while the government set to work to stimulate spending, consumers dug their heels in, making it their top priority to "reduce their indebtedness and rebalance their finances," Curtin said. "Although the aggressive Fed policies have finally sparked gains in household wealth, wage and job prospects have remained stagnant," Curtin said. Rising home prices and stocks have had a positive effect on some households, but most of the gains are currently limited to those in the top rungs of the economy. Thirty-eight percent of home- owners reported a rise in their home's value over the past year, while 15 percent said their home's value declined. Higher-income households were more likely to fall into the 38 percent reporting gains, according to Curtin. The gains in stocks and home values "were the anticipated and desired outcomes of the Fed's policy actions," Curtin said. However, Curtin says the policy fell short in improving consumer outlook. "Indeed, consumers still view the outlook for their finances as not too different than at the recession lowpoint," he said. A widespread belief that incomes will not rise as much or as fast as they once did translates to more cautious spending. Previously, the Fed said stimu- lus spending was necessary as long as unemployment remained above 6.5 percent. As of November, unemploy- ment stood at 7 percent, just above the threshold but down significantly from the 10 percent peak in 2009. However, the perceived improvement in employment is largely a result of a declining labor force rather than an actual increase in employment. Curtin does concede that a portion of the declining labor force is the result of retiring baby boomers. The Brookings Institute says half the decline can be attributed to retirees. While in the past, consumers have looked to the government to help solve economic problems and ensure economic growth, Curtin says today's consumers are frus- trated with their government. "To say that consumers were disappointed by the inability of the government to reach a settlement is a vast understatement," Curtin said in regards to the federal bud- get and debt ceiling debate. "For many consumers, the government has become part of the problem rather than part of the solution," he continued. While conceding criticism for the government's policies is "hardly new," Curtin suggested today's situation is unprecedent- ed in that "prior expressions of discontent prompted changes in economic policies which success- fully reinvigorated the economy." "This has been the longest stretch of time in which no action by the government was viewed as an effective countermeasure to the economic problems faced by most consumers," Curtin said.