U.S. Economy: Drop in Confidence Index Masks Strength?
By Siobhan Hughes, Monee Fields-White and Andrew Ward
Washington, Oct. 31 (Bloomberg) -- Consumer confidence in the U.S. economy
declined in October to its lowest level in a year, a measure that was still high
enough to signal no end to the record economic expansion, now in its 10th year.
The Conference Board's index of consumer confidence fell to 135.2 this month
from a revised 142.5 in September. The October reading was the lowest since
130.5 in October 1999. Manufacturing in the Midwest declined in October as
production fell to its slowest pace in two years, a survey of purchasing managers
found.
While the reports point to a cooling economy, other evidence suggests consumer
spending isn't slowing much. ``There are real reasons consumers should worry,
but we'll wait for November before reading too much into the drop,'' said
Christopher Low, chief economist at First Tennessee Capital Markets in New
York.
More people said they plan to buy homes and cars and take vacations, the
consumer survey found. Sales of new single-family homes rose 9.2 percent in
September to the fastest pace in six months, the Commerce Department
reported separately. And new car and truck sales are expected to show a 3.6
percent increase for October, according to analysts surveyed by Bloomberg
News.
``Growth appears to have indeed moderated to a more sustainable pace, raising
the odds that we have avoided the development of economic imbalances that
have led to the end of past economic expansions,'' Federal Reserve Governor
Roger Ferguson said today in Seattle.
Drop in Stocks
This month's decline in confidence most likely reflected a drop in stock prices
and a rise in oil costs, analysts said. The Dow Jones Industrial Average closed
below 10,000 for the first time in seven months on Oct. 18, and oil has averaged
almost $33 a barrel this month, compared with $23 a year earlier. At the same
time, unemployment probably rose just above the 30-year low of 3.9 percent
reached in April and repeated in September.
The sense of consumer concern was echoed today by John Auten, director of the
U.S. Treasury's office of macroeconomic analysis. He told a panel of Wall Street
executives that higher oil prices and swings in stock values mean ``there is
always the potential for unwelcome surprises.'' Still, Auten said, ``further
economic expansion at a solid pace seems to be the most likely outcome.''
The economy grew at a 2.7 percent annual rate in period from July through
September, compared with a 5.6 percent pace in the second three months of the
year, the Commerce Department reported last week. Cooler growth follows six
interest-rate increases by Fed policy-makers beginning in June 1999.
Consumer spending picked up in the third quarter, however, growing at a 4.5
percent rate compared with 3.1 percent in the second quarter. Most of that
increase came in September, suggesting a quickening pace for the final three
months of 2000.
What's more, the Conference Board's confidence index has fallen in October for
11 straight years then rebounded a month later.
Income Uncertainty
U.S. Treasury securities fell and stocks rose after the reports. The 10-year
Treasury note fell 3/16 point, pushing up its yield 3 basis points to 5.76 percent.
The Dow gained 135 points, or 1.3 percent, to close at 10971.37. The Nasdaq
Composite Index rose 178 points, or 5.6 percent, to close at 3369.55.
The consumer survey, during a year in which the index rose to a record 144.7,
was released just a week before voters decide whether Texas Governor George
W. Bush, the Republican, or Vice President Al Gore, the Democrat, can best
serve as president and steer the economy for another four years.
An index tracking consumers' assessment of present conditions fell to 177 in
October from 182.5 in September. A measure of consumer expectations for the
next six months fell to 107.4 from 115.9.
Jobs and Incomes
The share of respondents who saw jobs as plentiful fell to 49.7 percent from 52.5
percent a month earlier. The share seeing jobs as not so plentiful rose to 38.2
percent in October from 36.9 percent in September. The share of respondents
who expect total family income to rise over the next six months fell to 24.2
percent from 28.1 percent.
That could reflect a sense of a slowing economy. Besides the cooler pace of
growth in the gross domestic product, manufacturing has been contracting.
The National Association of Purchasing Management-Chicago reported that its
monthly index of regional manufacturing fell to 48.7 in October from 51.4 in
September. The three-month average for the index fell below 50 -- the level at
which the index signals a decline in activity -- for the first time since April 1996.
The production index fell to 49.6, the lowest since January 1999, from 62.4
percent last month, a five-month high.
The Chicago-area decline is ``more or less in line with the national picture,'' said
Paul Christopher, an economist at A.G. Edwards & Sons in St. Louis. A national
report tomorrow by purchasing managers is likely to show a third straight drop.
New Home Sales Rose
That leaves consumers in charge of growth, with home sales a factor. Today's
Commerce Department report showed sales of new homes rose to 946,000 at an
annual rate in September. That's the highest level since 947,000 in March and
follows August's 5.8 percent decline to a rate of 866,000. New home sales are on
track for their second-best year ever in 2000, after 907,000 were sold last year.
The confidence survey found the share of consumers planning to buy a new
home rose to 3.7 percent from 2.9 percent. The share planning to buy an
automobile rose to 9.3 percent from 7.8 percent in September. The share
planning a vacation rose to 50 percent, the highest in a year, from 45.7 in
September.
``With housing sales so strong, it is reasonable to question whether there really
is much of a slowdown going on,'' said Joel L. Naroff, president of Naroff
Economic Advisors in Holland, Pennsylvania. |
