Consumer Confidence Up Sharply in March
Undaunted by reports of layoffs, consumers became significantly more confident in March, the first time in five months they have grown more upbeat about their economic prospects, the Conference Board reported Tuesday.
While President Bush is promoting an immediate tax cut as a stimulant for a lagging economy, consumers apparently believe things aren’t so bad after all.
“It’s the president’s job to look for warnings of economic trouble ahead and to heed them, and to act,” Bush said Tuesday in a speech in Kalamazoo, Mich., the most recent stop in a nationwide campaign to generate grass-roots enthusiasm for his proposed $1.6-trillion tax cut plan.
However, for most consumers, “the perception has been much worse than the reality, and the reality of the economy is pretty good,” said Sung Won Sohn, chief economist at Wells Fargo & Co.
The Conference Board said its closely watched survey of Americans’ attitudes about spending demonstrated that “consumer expectations are substantially more optimistic than in February.” The monthly report, based on a sample of 5,000 households, is considered a reliable barometer.
Consumers’ feelings are vital because they buy about two-thirds of what the economy produces. Many economists have warned that consumers, spooked by losses in the stock market, would curtail their spending, sending the economy tumbling into recession.
But Tuesday’s report suggests that members of typical American households are undaunted. “The recent weakness in the stock market has done little to dampen either consumers’ assessment of present economic conditions or future expectations,” said Lynn Franco, director of the Consumer Research Center at the Conference Board.
The Conference Board, a business group, asks consumers about how they view business prospects, whether they think jobs will become more scarce or plentiful and how they expect their incomes to change. Their answers are weighted to produce an overall measure of confidence.
Consumers are more optimistic about general business conditions and about the ability of the economy to create new jobs. They apparently have given a collective shrug to alarms from the press and their elected officials, economists suggested.
“The newspapers are writing things that sell newspapers and the president and the Congress are saying things that sell tax cuts,” said Martin Regalia, chief economist at the U.S. Chamber of Commerce. “We have an economy that has slowed, but it still seems to be moving ahead ever so slightly. People know things are not as good as they were, but probably not as bad as they had feared.”
He noted that new orders for durable goods declined very slightly in February, an encouraging sign after a big drop during January.
If consumer optimism is warranted, the economy is making a transition from a lively pace of growth to a very slow expansion, and should be able to avoid a recession.
There is a definite slowdown in manufacturing, with numerous announcements of layoffs. But the service economy, which accounts for 80% of all jobs, keeps expanding. “We have labor shortages from sea to shining sea,” said Sohn of Wells Fargo.
The Conference Board’s consumer confidence index was 117 in March, up from a revised level of 109.2 in February. (The base figure of 100 is equal to the level of confidence in 1985.)
The number came “as kind of a surprise and we were surprised along with everybody else,” said Douglas Duncan, chief economist for the Mortgage Bankers Assn. of America. Evidently, the strong housing market “is a cushion to the whole economy,” according to Duncan.
Consumers are reacting favorably to lower interest rates, he said, by refinancing their home mortgages. Lower rates yield smaller mortgage payments each month, giving households more disposable income to spend on other goods and services.
And lower interest charges also make it more attractive to borrow against the equity in homes, providing more cash for spending.
The March reversal after five months of negative sentiment means consumers “have lost the depressed outlook,” he said. After “seeing a lot of discouraging news stories, they stepped back and said, ‘Gee, maybe things are not as bad as we thought.’ ”
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Consumer Confidence
From a monthly survey of 5,000 U.S. households. Index: 1985=100.
March: 117
Source: Conference Board
