Consumer Confidence Surges on Gulf War Success : Index Posts Its Biggest Gain Since ‘69, but Durable Goods Orders Drop Again
Consumer confidence, buoyed by U.S. success in the Gulf War, staged a record rebound in March, signaling that the economy may recover in coming months. The news helped drive the stock market up sharply and sent the dollar to a nine-month high against the German mark.
The Conference Board said Tuesday that its index of consumer confidence rose to 81.0 in March from a revised 59.4 in February--the largest monthly gain since the private business research group began its consumer surveys in 1969.
But tempering the optimism was a negative report from the Commerce Department, which said Tuesday that orders for durable goods--big-ticket items ranging from consumer appliances to airplanes--dropped 0.3% in February, the third setback in the past four months.
The decline was centered in a 10.6% plunge in demand for industrial machinery and equipment, a category that had shown a 10.5% increase the previous month.
The sharp increase in consumer confidence surprised many economists. Some noted that the survey results show consumers to be conservative in their current spending plans but optimistic that the economy will improve later this year. Overall, the results are a strong signal that the economy will begin to recover in the months ahead, analysts said.
The March confidence data, based on surveys of 5,000 U.S. households, reflected some concern about current economic conditions but a sharp rise in optimism about the future. The survey showed that 27.9% of those polled expect business conditions to improve over the next six months, compared to only 14.4% last month.
The confidence of the nation’s consumers--considered key to the health of the economy--had been severely depressed in recent months because of the Gulf War, said Fabian Linden, executive director of the Conference Board’s Consumer Research Center.
“Just as the onset of the Gulf crisis provoked a significant decline in confidence last summer, America’s victory in the Gulf has brought about a sharp improvement in consumers’ spirits,” Linden said. “With higher expectations for the future, consumers may be more likely to spend. This could well contribute to a somewhat quicker-than-expected recovery of the economy. However, the notion that the recent abrupt improvement in confidence will catapult us out of the recession is excessively optimistic.”
Wall Street economists said the report was encouraging, but also advised caution.
“This is a sign that people have the attitude needed for an economic turnaround,” said Ed Yardeni, an economist at the investment firm of C. J. Lawrence in New York. “But people have to make it happen--they have to vote with their dollars.”
Consumer shopping plans do appear to be stronger than in recent months, the Conference Board reported. Also, the number of people who plan to buy a home rose to 4.4% in March, the highest level in three years, up from 3.0% in February.
There has been much conflicting data on the state of the economy. On one hand, housing starts and retail sales rose last month, while oil prices declined. The drop in durable-goods orders added to the uncertainty.
This mix of economic developments was reflected in the consumer survey. The number of those planning to buy a car fell to 6.7% in March from 7.5% in February, according to the survey. People also remained concerned about jobs, the survey showed, with a larger number of people complaining that jobs are “hard to get” than in the previous survey.
“People may be more optimistic because the war is over but many are unemployed and don’t have money to go out and spend,” observed Michael Penzer, vice president and senior economist at the Bank of America in San Francisco.
Penzer predicted that there would be a moderate rise in economic growth beginning in April and more substantial growth by the third quarter of 1991.
However, Richard Rahn, chief economist for the U.S. Chamber of Commerce, said the widespread weakness in manufacturing orders in February raised the specter of further production cutbacks and layoffs in manufacturing.
“Those seeking evidence of an early end to the recession found no encouragement in February goods orders and shipments,” Rahn said. “Durable goods production should continue to drop for several months.”
The markets seemed to pay more attention to the consumer confidence survey. The Dow Jones industrial average closed with a robust gain of 49.01 points to 2,914.85. It was the steepest rise since a 58-point jump on March 3.
The dollar closed at 1.6875 German marks Tuesday, a nine-month high, amid optimism about the U.S. economy and concern over events in Germany and the Soviet Union.
Durable Goods New orders Billions of dollars seasonally adjusted Febuary, 1991: 119.0 Source: U.S. Dept. of Commerce
