Data Shows Resurgence in Economy : Recovery: Surveys report consumer confidence is soaring nationally and see strong 1994 growth in factory orders. But California remains the big exception.
The national economic recovery, puttering along at a modest pace in recent months, showed signs of shifting into high gear Tuesday as one survey found consumers gaining confidence and another predicted that shipments from the nation’s factories would grow in 1994 at their fastest rate in six years.
Consumer confidence soared nationally in December for the second straight month, according to the widely watched consumer confidence index of the Conference Board. Separately, the Commerce Department predicted that manufacturing output would climb next year in nearly 90% of the industries it assessed.
The two reports were welcome news for most of the nation, particularly on the heels of reports that retailers had seen lower-than-expected sales growth in the all-important Christmas shopping season, despite a last-minute flurry of buying.
They also confirm expectations raised by other recent economic indicators--rising personal incomes, consumer spending and orders for durable goods, such as cars and refrigerators, along with an increased willingness of consumers to charge their purchases--that the U.S. economy is on the mend.
Recession-ravaged California remains the big exception. Consumer confidence here remained well below the national average in December, though much higher than its October levels. Moreover, contrary to the general trend, shipments from the beleaguered defense industry were expected to fall in 1994, further undermining the state’s employment and industrial base.
To analysts who expect growth to reach a moderate 3% pace next year on the national level, however, the indicators signaled that the economy was headed in the right direction.
“That would be an entirely acceptable performance,” said Robert G. Dederick, chief economist at Northern Trust Co. in Chicago. “That sort of moderate growth, if you have enough of it, leaves you in a pretty good position.”
The Conference Board’s consumer confidence index rose more than 8 points in December to 80.2, nearly 20 points higher than in October. The index benchmark of 100 represents confidence levels in 1985.
“The fact that we got two months of encouraging (increases) makes us feel we may be entering 1994 with more economic thrust than we had anticipated in recent months,” said Fabian Linden, executive director of the Conference Board’s Consumer Research Center.
Increased consumer confidence means that people are more secure about their jobs and prospects in the next six months and are more likely to spend money for goods and services. Since such consumer spending accounts for two-thirds of the nation’s economic activity, expectations of further buying lead manufacturers to build inventories and invest in capital equipment. Recent low interest rates only spur the trend.
“The confidence reading is probably the more important (indicator),” said Gary L. Ciminero, chief economist at the Fleet Financial Group in Providence, R. I. “It’s in a sustainable trend upward, and the level has more to say about next year than what the government is formally forecasting.”
Yet not everyone was sanguine.
“Consumer confidence is good, and it’s probably not going to deteriorate, but it may have peaked out,” said Cynthia Latta, senior financial economist at DRI/McGraw Hill in Lexington, Mass. Consumers may feel differently early next year, when they are hit with higher tax levies, fewer deductions and holiday credit-card bills, she said.
The Conference Board’s consumer-confidence survey is based on a sample of 5,000 U.S. households.
In the most recent survey, slightly more respondents than before were positive in their assessment of business conditions, and there was also a slight increase in the number reporting that jobs were more plentiful. On both issues, however, pessimists continued to outnumber optimists by a large margin, the Conference Board said.
But the board added that there has been a significant gain in the number of consumers who believe overall economic conditions will be better and a large decrease in the number who feel they will be worse. In the latest survey, twice as many consumers were positive about the immediate future as were negative. Only two months earlier, the pessimists outnumbered the optimists, the board reported.
Separately, the Commerce Department predicted that business investment in capital equipment and consumer purchases of durable goods would spur the fastest growth in shipments by the nation’s factories since 1988.
Among the fastest growers: autos, appliances, residential construction, computer and related products, health care and pollution control equipment.
A big exception was aerospace, where shipments were expected to fall 11%.
The Commerce Department predicted that the manufacturers’ shipments on average would grow 2.8% in 1994, up from 2% in 1993. Exports were expected to grow 5%, an increase from 4.2% in 1993.
Other highlights:
* Shipments of household appliances were expected to grow 3.6% in 1994, compared to 3.1% in 1993.
* The $600-billion information technology industry--including computer software and computer management services--is expected to grow 7.7%, about the same as in 1993.
* The environmental technology industry--including pollution control equipment--is forecast to double its shipments from 1992 levels to about $45 billion in 1995.
* Spending in health industries--including medical instruments--is forecast to rise 12.5%, exceeding $1 trillion for the first time.
More Faith in Economy
Consumer confidence soared in December, a sign the economy is gathering steam. Consumer spending fuels two-thirds of U.S. economic activity. December ‘92: 78.1 December ‘93: 80.2 Source: Conference Board, from monthly survey of 5,000 U.S. households; index; 1985 = 100
