Economic Outlook: Not the first choice

President Barack Obama's comment on accepting $38 billion in cuts for the 2011 budget were echoed by a mechanic in Connecticut this week.

It is a telling coincidence. Obama Friday stepped up to a podium in Washington to explain the compromise budget hammered out just in time to avoid a government shutdown and said, "I would not have made these cuts in better circumstances."

Jon Wood, a 49-year-old mechanic with an 80-mile commute to work, was quoted Tuesday in The New York Times in an piece on rising gasoline prices as saying he was pleased, in hindsight, he had purchased a Nissan Sentra, which gets 30 miles per gallon on the highway.

"I drive something very economical. Normally, it would not be my first choice," Wood told the Times.

This week, Forbes Magazine said it had compiled several customer satisfaction tests and found what would appear to be an obvious correlation between luxury brand automobiles and the consumers' perception of quality. It turns out, seven out of the top eight brands viewed as top quality were luxury brands: Porsche, Mercedes-Benz, BMW and the like. Volkswagen was the exception, an economical brand viewed with reverence.

Suffice it to say, any noise about American cars making it onto the list of quality products sounded apologetic and hollow. U.S. cars are perennially "making gains" on their foreign rivals in critical areas, such as fuel efficiency and quality, only to find next year they will still be "making gains" and not catching up, because foreign cars are constantly making improvements, as well.

If only they would stop doing that.

But the question of the hour is economical: With gasoline prices topping $4 per gallon in six states and heading there in 44 others, when are U.S. consumers going to view a fuel efficient car as a quality worth owning, rather than a compromise they really don't want?

Economists are currently viewing the $4 per gallon scare with undeserving, but bemused patience. What little discretionary funds are hiding under seat cushions or tucked away in savings accounts for a rainy day are now headed toward oil exporting nations. Economists are judging the impact of this.

A few choices dominate the discussion. First consumers could simply cut back on their driving -- fewer trips to the mall, but only marginally less spent on goods and services equals more economical consumers.

Secondly, consumers could simply back away from spending in significant numbers. The economy, in other words, has a balancing point marked by consumers feeling carefree or feeling scared. As the unemployment rate declines, there will be fewer consumers on the dole and more consumers willing to spend, which could make up some of the difference. To measure this, add 250,000 employed workers to the economy each month, but crank up the pain factor 0.5 percent each month, as well. Equilibrium.

Thirdly, the Fed could step in and raise lending rates, cutting back on liquidity in financial markets for fear that prices across the board will move higher, as inflation is often opportunistic. In that sense, adding jobs (and the coincident paychecks) to the economy could cause prices to heat up.

In the background, the next time an advertisement appears on television urging consumers to buy a car bigger than they really need … score that Organization of Petroleum Exporting Countries 1, United States 0.

In International markets Tuesday, the Nikkei 225 index in Japan shed 1.69 percent while the Shanghai composite index in China slipped 0.05 percent. The Hang Seng index in Hong Kong fell 1.34 percent while the Sensex in India lost 0.97 percent.

The S&P/ASX 200 index in Australia lost 1.46 percent.

Stocks were down in Europe, as well. In Britain, the FTSE 100 index gave up 1.01 percent in midday trading while the DAX 30 in Germany lost 1.24 percent. The CAC 40 in France dropped 1.31 percent while the Stoxx Europe 600 index shed 1.29 percent.
ANTHONY HALL || United Press International