Consumer Confidence Surges
Consumer confidence surged in March and orders for durable goods held firm in February, evidence the U.S. economy has bolted out of recession. But the two reports Tuesday raised questions about the strength of recovery later this year.
The Conference Board said its closely watched index of consumer confidence reached its highest level since August, rallying to 110.2 in March. That beat forecasts of a rise to 98.8 and was up from a revised 95.0 in February.
Separately, durable goods rose 1.5% to $179.4 billion in February after a downwardly revised 1.3% gain in January, the Commerce Department said.
The report was stronger than analysts’ expectations of a 1.0% gain. But excluding transportation, February orders were down 1.3%, and excluding defense, they fell by 0.2%.
Although the reports were positive news for an economy that just six months ago looked headed for a long and deep recession after the Sept. 11 attacks, financial markets scaled back the likelihood the Federal Reserve will raise interest rates at its May meeting to about 50-50 from 80% odds a day earlier.
The bulk of the rise in February durable goods orders came from purchases of aircraft and defense capital goods--not from the more sustainable consumer or business spending.
Economists cautioned that already-strong consumer spending, which makes up two-thirds of the economy, may have little room to accelerate and help boost the economy further.
The confidence report showed scant improvement in intentions to buy new cars, washing machines or take long vacations.
“The confidence numbers really provide a lot of support for [Fed Chairman Alan] Greenspan’s view that there’s no pent-up demand in the economy and therefore we need to look to the business sector,” said Drew Matus, senior financial economist at Lehman Bros.
Yet businesses lack the profitability to spend.
“The durable goods orders show that the business sector really isn’t in any condition to lead us out of the recession. So you take all those in hand with the Fed comments made earlier today and the Fed’s not going anywhere [with interest rates] any time soon,” Matus said.
Dallas Fed President Robert McTeer said Tuesday that he was “not in a hurry” to raise short-term interest rates, and Fed Board Governor Mark Olson said uncertainty about the strength of the recovery was “considerable.”
The Conference Board said its present situation index, which measures views of the economy right now, posted its largest one-month gain in 25 years, reaching 111.5 in March, up from 96.4 in February.
The expectations index, a gauge of consumers’ six-month outlook, rallied to 109.3 from 94.
Consumer confidence has risen for three of the last four months; a similar gauge of sentiment from the University of Michigan also showed a sharp bounce in mid-March.
Analysts track the indexes for clues on future consumer spending.
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Consumer Confidence
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Durable Goods
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