U.S. Consumer Mood Falls to a 17-Year Low
Consumer confidence has plunged to a 17-year low, according to a new report, raising fresh doubts about the prospects for recovery and prompting Democrats in Congress to assail Federal Reserve Board Chairman Alan Greenspan on Tuesday for refusing to cut interest rates further.
The private Conference Board reported Tuesday that its monthly index of consumer sentiment dropped 4 points in February to 46.3, the lowest level recorded since December, 1974, when the nation was in the midst of one of its worst recessions in modern times.
The report was released just as Greenspan began testimony before the Senate Banking, Housing and Urban Affairs Committee, where leading Democrats used the fresh data to roundly criticize what they called his passive and overly cautious approach to monetary policy.
A particular target was Greenspan’s position on interest rates.
The Federal Reserve cut interest rates dramatically in late December, when it lowered the discount rate on loans by the Fed to commercial banks by one full percentage point, to 3.5%, the lowest level since 1964. But the Fed has refused to cut interest rates further.
In a hearing on Fed policy, Greenspan acknowledged that he found the surprising drop in consumer confidence “quite disturbing” and conceded that the figures are not in line with the Fed’s forecast of a spring recovery.
Greenspan still stressed, however, that he continues to see signs of recovery, mostly in the housing industry. Home building has begun to surge, largely in response to low interest rates.
But he pledged to continue monitoring the effects of Fed policy and to ease it further if the economy does not show stronger signs of an upturn within the next few weeks.
But Greenspan’s response angered many senators, who found his position too conservative in view of the importance of economic issues in the 1992 elections.
Sen. Bob Graham (D-Fla.) chided Greenspan by saying: “We don’t need a John Madden color commentator up in the television booth monitoring things. We need a head coach down on the sidelines taking the lead.”
Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.) was even harsher. Riegle, whose home state was hit with huge job cutbacks announced by General Motors on Monday, repeatedly interrupted Greenspan to lash out at him for his refusal to move more aggressively.
“You say yourself that you are uncertain about which way the economy is going,” said Riegle. “I think by your own statements you prove that more has to be done. There is a lack of confidence in America and I don’t think we can stand pat.
“The people of this country are trying to tell us something in this consumer confidence report and they are trying to tell you and the Federal Reserve something. You have to do more. You have been too passive, quite frankly.”
Despite the attacks, Greenspan, reappointed by President Bush to a second four-year term as Fed chairman last summer, is generally held in high regard in Congress.
But Fed policy has come under greater scrutiny as many in Congress have come to realize that, given the huge budget deficit, the central bank is virtually the only agency of government capable of turning the economy around.
“In our budget agreement, we agreed basically to keep hands off fiscal policy and let monetary policy govern this economy,” Sen. Jim Sasser (D-Tenn.) said to Greenspan on Tuesday. “So now I want to know when monetary policy is going to work. Why play Russian roulette with the economy?”
The unusually intense criticism of Greenspan by Democrats came as a conservative Republican senator broke with the White House and called on Bush to fire another key economic policy-maker, Treasury Secretary Nicholas F. Brady. Sen. Connie Mack (R-Fla.) appealed to the President to oust Brady to show that he wants to make dramatic change.
“You have been given bad advice on the economy,” Mack said in a letter to Bush. “It’s worse than you have been told. That fault rests on the shoulders of your economic advisers and the head of that team is Secretary Brady.
“Mr. President, the time has come to ask for Secretary Brady’s resignation,” Mack concluded.
Mack said that voters in New Hampshire sent a clear message: “Americans are hurting. They want fundamental change and they want it now. . . . My constituents are in pain. They are looking to Washington for swift action to get our economy moving again.”
That message of pain seemed clear in the surprisingly weak consumer confidence survey, which gauged consumer sentiments just as the nation began to focus on the presidential campaign and heard fresh reports of more job losses at major corporations.
The report suggested that people do not believe the economy will recover as quickly or as forcefully as many economists have predicted.
Consumer confidence has been a key indicator throughout the current slump because middle-class anxieties about the economy and the future have held down consumer spending, which in turn accounts for two-thirds of the U.S. economy.
“You are not going to have a consumer-led recovery at these levels of consumer confidence,” said Jason Bram, a spokesman for the Conference Board.
But both economists and politicians said they believe Americans now share far deeper fears about the future than at virtually any other time in recent memory with many people, even those who have not been laid off, increasingly fearful about the security of their jobs.
“If our measures are at all accurate, the rate of job losses in this recession are well below where they were in the recession of 1982, or 1975, yet we have a degree of concern about job security that is as great or greater than we had then,” observed a puzzled Greenspan. “I think that reflects a growing concern for the long-term economic health of the country.”
Times staff writer William J. Eaton contributed to this story.
