I believe consumer confidence is the culprit for the serious downturn in the economy.
I noticed that it is the lowest in 7 years. Of course, if you watch the tv shows, like Rukeyser,
they'll never admit that Americans and people from other countries who had invested in the
US stock markets were paralyzed over the problems with the 2000 election. And like many
other people, I won't buy stocks at this time because the situation could get worse, especially
with the electricity, natural gas and oil shortages.
A tax cut will help many pay the bills only. My next door neighbor told me about her friend
whose electricity bill was over $300 a month. She uses electricity for heat, and she can't
afford these rates. I heard of another middle-class family of four that had a bill of $700.00 per month
for their electricity! We use natural gas, and compared to what people said they paid last year,
the price has more than tripled for our monthly bill.
I noticed that the price of food has increased, especially milk!
I thought you might want to read this article about consumer confidence.
February 17, 2001
Consumer Confidence Is Wild Card in the Nation's Economy
From The New York Times
By LOUIS UCHITELLE
American consumers, shaken by a rash of
layoff announcements and a weakening
stock market, are losing confidence in the
economy at the fastest pace since the last
recession.
The closely watched index of consumer
sentiment compiled by the University of
Michigan plunged in early February for the
fourth consecutive month, the university
reported yesterday. The February decline of
6.9 points brought the index to 87.8, about
where it was at the start of the last recession,
in July 1990.
"We are likely to find ourselves in a full- blown
recession if there is another sharp drop in
March," said Richard T. Curtin, director of
Michigan's Surveys of Consumers. "Right
now, there are lots of cross- currents. People have very positive views of
mortgage rates and of interest rates in general on loans. But they are
apprehensive about the future, and they tell us they plan to hold back on
spending."
Consumer confidence has emerged as the wild card in the current
slowdown — the "X factor" that can save the day or push the economy
over the brink into recession. The sharp drop in the Michigan barometer
helped to explain the slide in stock prices yesterday. Citing the latest
falloff in confidence, some Wall Street forecasters declared that the
Federal Reserve would soon cut interest rates again, despite a rise in
January in the Producer Price index, a key inflation measure. And the
bad news on confidence overshadowed a Commerce Department report
yesterday that home construction had risen sharply in January.
"The fact is the consumer confidence index is a leading indicator, and
there is no indication yet that it is bottoming out," said Ian C.
Shepherdson, chief domestic economist at High Frequency Economics.
"It is telling us that even if manufacturing rebounds and energy prices fall
by spring, the economy could be held down by much lower consumer
spending."
The chief scorekeepers for consumer confidence are Michigan and the
Conference Board, a business organization whose index has tracked
Michigan's, but with a lag. Both have noted that the declines in their
indexes have come chiefly as a result of pessimism about the future,
particularly pessimism about jobs. A majority of those surveyed in early
February expect "the unemployment rate to rise during the year ahead,"
Mr. Curtin said. But worries about what is ahead increasingly affect
consumer behavior in the present. "Buying attitudes toward furniture,
appliances, home electronics and other large household durables fell in
early February to their lowest levels since the early 1990's," Mr. Curtin
said.
Taking the public by surprise, the Fed cut rates sharply on Jan. 3, partly
because of a big drop in Michigan's consumer confidence index for
December, the steepest one-month fall in a decade. Consumer
confidence has been a Fed concern since. Focusing on the rapid shift in
confidence, Alan Greenspan, the Fed chairman, said in Congressional
testimony on Tuesday that confidence was driven largely by "nonrational"
behavior.
The "rending of confidence is one reason that recessions are so difficult to
forecast," he said. "They may not be just changes in degree from a period
of economic expansion, but a different process engendered by fear."
After rising or holding steady for most of last year the Michigan index has
plunged 19.8 points since November. Not since the last recession, which
started in July 1990 and ended the following April, has the index fallen so
far in so few months. The fall came on the heels of a slowing economy
and numerous downsizing announcements.
Recent economic data has suggested that the slowdown may be ending.
Retail sales were strong in January. And manufacturers cut back
production sufficiently to brake the growth of inventories. The hope —
reflected in some of Mr. Greenspan's testimony on Tuesday — is that
production will revive soon as the stockpiled merchandise is sold off.
The sharp drop in consumer confidence in early February told a
contradictory story. If the drop in confidence is confirmed in the final
February reading and the Conference Board's survey for February
matches Michigan's finding, then the odds rise that the economy will
contract in the first quarter, instead of grow.
Some economists — those at Goldman, Sachs, for example — argue
that the economy will contract slightly in the current quarter partly
because "confidence appears to be starting to rupture." The economy is
deemed to be in recession if the contraction lasts for at least six months,
or two quarters.
The Michigan survey is considered by some economists to be a better
measure of consumer confidence than the Conference Board's. Certainly
their methods are different.
Mr. Curtin and his staff at Michigan do their own polling, while the
Conference Board, based in New York, farms the work out to a market
research firm in Ohio. Michigan's survey draws on 500 telephone
interviews spread through the month, each interview lasting 30 minutes.
The Conference Board relies on questionnaires mailed out the first of
each month to 5,000 households. The results are announced the middle
of the following month, nearly two weeks after Michigan's final tally.
The Conference Board's questionnaire repeats the same questions month
after month, while Michigan's interviewers vary some questions, to
capture the changing nuances of consumer sentiment.
Whatever the method, neither survey has resolved a central issue:
Whether the plunge in consumer confidence is a reaction to all the
downsizing announcements and all the talk about recession, or whether
people are reacting to their own experiences — a hiring or wage freeze in
their own workplaces, for example, or the layoff of someone they know,
or stock market losses.
Mr. Curtin says that consumers are increasingly seeing evidence of the
slowdown in their own lives or in their immediate surroundings. "We have
a consumer who thinks economic growth has virtually stopped and job
losses are rising," he said.
Chris Varvares, a partner at Macroeconomic Advisers, a consulting and
forecasting firm, argues that confidence has fallen more quickly than
actual experience warrants. "If people were not listening to the news," he
said, "their own experiences would not have encouraged such a sharp
drop in confidence."
Lynn Franco, director of the Conference Board's consumer research
center, takes a middle road. "There is more fear than reality warrants
now," she said, "but if the fear is not resolved quickly, it will become self-
fulfilling."
nytimes.com |
