POINT OF VIEW: Stalwart Consumers Now Have Grave Doubts
29 Oct 12:45
By Neal Lipschutz
A Dow Jones Newswires Column
NEW YORK (Dow Jones)--As we stumble toward the holiday season, no one in
America's economy is of good cheer.
Steadfast consumers expressed their deepening gloom Tuesday in a Conference
Board survey that found their confidence in October at its lowest level in
about nine years.
Business executives have for quite a while been long on doubt, refusing to
take a chance on increased spending or expansion. That corporate conservatism,
justifiable in most individual cases, collectively forms the self-fulfilling
slow growth that then confirms the original cautious attitudes.
The Conference Board report on consumer confidence spurs the stroll toward
the belief in a November Federal Reserve interest rate cut into a full run.
Only the contents of Friday's employment report for October need to be viewed
before an even firmer rate-cut opinion is formed.
All of a sudden an economic recovery that was too sluggish, but acceptable,
is now seen as an unacceptable peril.
It's like a patient resting comfortably in his hospital bed confidently
awaiting the return of full strength who suddenly needs to be rushed back into
intensive care for further treatment.
Recent articles in The Wall Street Journal and The Washington Post have added
to the market belief that Fed policymakers are concerned enough about the
anemic state of economic growth that they are likely to reduce short-term
interest rates before 2002 departs.
The problem is that interest rate policy is not the proper remedy for the
disease. But it is the only medicine the Federal Reserve has when it meets next
on Nov. 6.
Even if the Fed cuts rates by 50 basis points at that meeting to a stunningly
low 1.25% for overnight federal funds, it's not going to spur much needed
capital spending.
Without the return of significant job creation, lower rates won't put muchof
a charge back into overall consumer spending.
It's true that it's best to watch what consumers do rather than what they
say. We've seen gloomy confidence surveys before, even as dejected consumers
dragged themselves to stores and auto showrooms to spend.
But the size of the drop in this latest confidence reading (to 79.4 from 93.7
in September), and the length of time U.S. consumers have gone it alone, makes
the current situation particularly dangerous.
As other writers have noted, the overhanging crisis with Iraq casts a pall
over U.S. economic decision-making that is immune to Fed policy or other
traditional ministrations. Geopolitical worries are a big reason for
decision-makers to simply put off big spending projects.
Through the third quarter, it seemed patience would be enough to get the
economy through. There were enough underlying positives, such as productivity
gains, no inflation and low financing costs, to bump along until corporate
profits grew healthier and spending decisions bolder.
October's stock market rally added some optimism to the longer-term scenario.
But consumers are telling us that there's not all the time in the world for
the economic cycle to decide to naturally kick into a higher gear.
So the Fed is likely to be prodded into action, which is preferable to
inaction, but no short-term cure-all.
And pending Friday's jobs report, Tuesday's confidence data mean Fed action
is now more likely in November than December.
Neal Lipschutz is senior editor, Americas, Dow Jones Newswires.
-By Neal Lipschutz, Dow Jones Newswires, 201 938 5152
neal.lipschutz@dowjones.com
(END) DOW JONES NEWS 10-29-02
12:45 PM |
