Anything to do with THE WAR? Eventually the consumer merchandise companies will turn war-negative because the war will HURT them (and their shareholders) a lot!
Consumers Glum as War Starts, Spend Less
Fri March 28, 2003 12:26 PM ET
By Victoria Thieberger
NEW YORK (Reuters) - Consumer spirits sagged in late March to a near-decade low as the United States went to war, another sign the U.S. economy remains hamstrung by uncertainty.
In the first two months of the year, Americans reined in spending, the keystone of economic growth, as war loomed, oil prices rose and job layoffs mounted.
The latest figures released on Friday suggested consumption would not give a boost to an otherwise weak first quarter.
But in a hopeful sign for the future, the Commerce Department said income rose solidly in February, suggesting consumers at least have more spending power. The question is whether they will want to spend, or just build up depleted savings.
As has been the case for weeks, economic news was of secondary interest on Friday for financial markets preoccupied with developments in Iraq as U.S.-led forces move closer to Baghdad and news of a bridge closure in New York City that turned out be unrelated to terrorism.
Stock prices retreated in morning trade on worries a long Iraq war might dent the economy and corporate profits, with the broad Standard & Poor's 500 dipping 5.59 points to 862.93. The dollar continued to struggle against major currencies and gold rose.
The University of Michigan's final March index of consumer sentiment fell for a third straight month to 77.6, its lowest since September 1993, from 79.9 in February.
But that was an improvement from the preliminary 75.0 reading in mid-March, possibly reflecting optimism of the early days of war before worries of a more protracted and brutal conflict emerged this week.
"I suspect if you took the same poll today, you'd already see a bit more of a pull-back because the momentum of the war has bogged down," said RBS Greenwich Capital Markets chief economist Jade Zelnik.
Although economists normally warn that confidence readings can give false clues on spending, as occurred last year when confidence wavered even as Americans bought cars and houses in record numbers, actual recent spending seems to have closely followed sentiment surveys.
"In March, we should see some rebound from the weather, but activity may have been limited by the start of the war," Zelnik said.
A MUCH-POSTPONED RECOVERY
The concern is that prolonged consumer stinginess could tip the economy back into recession, since businesses have made clear they have no immediate plans to ramp up capital spending or hiring, which could support economic growth.
Retail sales, auto sales and even the robust housing market have all shown signs of faltering.
The Commerce Department said consumer spending was unchanged in February, for the second straight month, crimped by rising energy costs and nasty weather. Adjusted for inflation, spending fell a steep 0.4 percent.
Spending on durable goods like cars, refrigerators and other items meant to last three years or more slumped 2.2 percent after a drastic 4.9 slide in January.
"Job creation will need to revive to revitalize consumption growth. Hopefully that will occur when the war ends," said UBS Warburg chief economist Maury Harris.
Economists are anxiously awaiting March jobs figures next Friday, and preliminary forecasts are for another decline after an alarming 308,000 drop in February.
The economic recovery has stalled in recent months and its prospects remain shrouded in the smoke of war, to the point where even the Federal Reserve has declared itself unable to describe the near-term outlook.
Many economists now expect U.S. gross domestic product, the broadest measure of the economy's health, to grow no more quickly in the first quarter than the meager 1.4 percent annual rate logged in the final three months of last year.
Although the relentless run of disappointing economic numbers would normally fuel market speculation of an imminent cut in interest rates by the Fed, the central bank has dampened those hopes. For months, it has stuck to its theory that uncertainties about war are holding back the recovery, and hoping activity will improve once those uncertainties lift.
It will take some time for the economic numbers to show whether that position is right.
"They need more convincing," said Lehman Brothers chief economist Ethan Harris, noting that the federal funds rate has already been slashed to a four-decade low of 1.25 percent. That means the Fed has only a few more rate cuts up its sleeve before it runs out of conventional stimulus for the economy.
"With rates this low already, every decision they make is an agonizing decision," Harris said. |
