"U.S. consumers get back on their feet "
Signs point to
economy riding
Sept. 11 storm,
but risks remain
Consumers appear to be getting back to their normal shopping routines.
OPINION
By Christopher Byron
MSNBC CONTRIBUTOR
Oct. 11 — Is America beginning to put the nightmare of Sept. 11 behind it? So it would seem, as stocks continue the strong advance they began on Sept. 24, and signs emerge that consumer spending is also beginning to recover.
ONE MONTH AFTER the attacks, people seem to be coming to the conclusion that life in America is not likely to be much different in the future, from a security point of view, from life in Britain, Israel, or any other country in which the threat of sudden death from a terrorist’s bomb remains part of the daily background noise one hears from simply leaving the house. You just go on with your life because there’s basically no other choice.
Says a new report on the matter from the normally cautious Bridgewater Associates, Inc., which manages billions for high net worth individuals and institutions around the world, “Even though the American offensive has just begun, and the anthrax scare seems to have been real, it appears that the effects of the events of Sept. 11 on the economy and the markets are largely (maybe 70 percent) behind us. Barring any major new terrorist attacks, we will return to “normality” (whatever that is) fairly soon. It is most likely that the economic impact of these events will be minimal (for example, 0.25 percent on growth this year).”
CONSUMER SENTIMENT KEY
On Friday, we’ll get the first comprehensive — and truly reliable — measure of whether this is, in fact, how people are actually thinking and feeling. The insight will come by way of the University of Michigan Institute For Social Research, which will release the preliminary results of its consumer sentiment survey for October.
The Michigan survey, which was begun in 1946, is the oldest — and most comprehensive — consumer sentiment survey of its kind in the country, sampling consumer attitudes about the economy and their own personal spending plans as much as a year down the road.
• Consumer comeback
• Tracking terror's dollars
• Wall Street rebuilds
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Between 1946 and 1990, the results of the survey were published once a month at the end of each month. But the jarring impact of Iraq’s invasion of Kuwait forced the Institute to begin releasing a preliminary report of its findings each month at the end of the second week of the month. That is the report that is due out Friday.
Chain Store Sales
For September : 0.8%
Jobless Claims
For 10/06/01 : 468,000
Import and Export Prices
For September : 0.3%
Oil and Gas Inventories
For 10/05/01 : 307.4 MB
Manufacturers Alliance/MAPI Survey
For 2001Q3 : 40%
Economic Calendar
Unlike data series such as the Bureau of Labor Statistics’ monthly report on unemployment, which arbitrarily focus on only a few days of data and then extrapolate the findings to apply to the entire month, the Michigan survey winds up gathering data for nearly the whole of the month, thereby taking into account jolts to public confidence such as the terrorist attacks of Sept. 11, which might occur as the month unfolds.
The Survey’s director, Dr. Richard Curtin, says that the rolling nature of the survey day after day, has tended to smooth out the findings, making the preliminary results that are released at mid-month a very good forecast of what is likely to be reported by the Institute at month’s end.
Friday’s report, which amounts to a kind of flash look at the entire month, will thus be the first national statistical survey, post-attack, of what consumers actually think and feel about the year ahead.
What might the survey results show? Using the 1966 data as a baseline, Wall Street analysts have been saying that the survey is likely to show that consumer sentiment dropped sharply from September levels, which were already depressed by the impact of the events of Sept. 11. In September, the Index of Consumer sentiment fell roughly 10 points from the August level, to 81.8, and analysts are now looking for it to fall again, equally sharply, to 72.5.
But if the accumulating, anecdotal evidence of recent days is any guide, the shock of those attacks may already have begun to wear off, and the expected drop in sentiment may not be as sharp as the experts are forecasting.
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STOCKS AN OBVIOUS INDICATOR
The behavior of the stock market is the most obvious indicator of what is happening to the mood of the public. Since Sept. 21, when the Dow industrials touched an intra-day low of 7,926, the market has rallied more than 1,400 points — a run-up of 18 percent in just 14 trading days. In nine of those days — including the most recent three — the market has closed higher than it closed the day before.
Markets at a glance
| 1 | 2 | 3 | 4 | 5
Name Price % Chg
DOW 9,372.19 +1.42%
Dow Jones Transportation Index 2,306.48 +3.49%
Dow Jones Utilities Index 317.85 +0.40%
S&P 500 1,092.13 +1.03%
S&P 100 INDEX 560.42 +1.02%
S&P Midcap 400 INDEX 457.99 +1.86%
NASDAQ 1,681.09 +3.37%
| 1 | 2 | 3 | 4 | 5
Name Price % Chg
Nasdaq 100 INDEX 1,365.58 +4.67%
Amex Composite Index 832.63 -0.19%
Russell 2000 Stock Index 430.24 +2.03%
Wilshire Smallcap Index 656.41 +1.84%
S&P 500/BARRA GROWTH INDEX 554.75 +0.61%
S&P 500/BARRA VALUE INDEX 537.44 +1.48%
Amex Gold Bugs Index 63.79 -2.67%
| 1 | 2 | 3 | 4 | 5
Name Price % Chg
Biotechnology Index 493.79 +3.86%
Computer Technology Index 660.11 +2.86%
Disk Drive Index 73.77 +4.02%
Natural Gas Index 205.56 +0.90%
Networking Index 250.39 +3.42%
North American Telecoms Index 849.01 -0.40%
Oil Index 533.98 -0.51%
| 1 | 2 | 3 | 4 | 5
Name Price % Chg
Pharmaceutical Index 389.16 -2.04%
Securities Broker Dealer Index 439.46 +6.88%
Tobacco Index 402.55 -0.45%
Inter@ctive Week Internet Idx 124.34 +6.75%
Morg Stanley Commodities Index 230.90 +0.65%
Morgan Stanley Consumer Index 540.70 -0.28%
Morgan Stanley Cyclical Index 490.88 +3.18%
| 1 | 2 | 3 | 4 | 5
Name Price % Chg
Morgan Stanley Healthcare Idx 412.39 -1.20%
Morg Stanley Technology Index 438.50 +4.01%
Semiconductor Sector Index 464.98 +8.49%
High Technology Index 591.59 +4.30%
Source: CNBC on MSN Money and S&P Comstock
Printable version
Spending by consumers as well is beginning to recover. Specialty retailing has been suffering, but this was the case even before the attacks. Wal-Mart, by contrast, is continuing to record gains, suggesting pretty clearly that consumer spending hasn’t collapsed, it has simply shifted to a focus on bargain hunting, which was also in evidence before the attacks.
Auto sales in October have been booming, not so much because consumers are flush with cash as because automakers have been rolling out utterly irresistible deals to spur sales and get shoppers back in the dealer showrooms. Zero-interest loans are now commonplace, meaning that consumers are being offered what amounts to free money to buy a car — a powerful incentive to act quickly before the offer is withdrawn.
This means that although auto sales may weaken again over the winter, they are for the time being, robust — and it is hard to feel depressed about the future if you’ve just bought a new car.
April 7,1917: A day after the United States entered World War I, the Dow began a slide that continued for several months. By year’s end, it had lost 21.6 percent. For the market, the increased economic production for the war, which had begun more than a year earlier, was mitigated partly by the double-digit inflation it generated and general anxiety about the conflict in Europe. By 1918, despite a 20 percent inflation rate, the market headed higher. In 1919, with inflation easing, stocks soared 30 percent.
Percentage change
May 4, 1970: Four days after President Richard Nixon announced the bombing of Cambodia, four students at an anti-war demonstration on the campus of Kent State University were shot and killed by Ohio National Guardsmen. Despite the social upheaval in the country, the economy had done very well during most of the Vietnam years.
Percentage change
Oct. 28, 1929: Encouraged by easy credit and little regulatory oversight, stocks surged from 1921 until September 1929. Then, in the autumn of ’29, steel producers, automakers and several other industries began to sputter, and businesses that had freely extended credit began to cut back. On Oct. 24 - “Black Thursday” - the Dow fell 2 percent. Prices stabilized the next day when J.P. Morgan and other financiers stepped in to buy. But Monday and Tuesday brought a deluge of selling, exacerbated by margin calls. The Crash ushered in the Great Depression. It took 25 years for the Dow to return to its pre-Crash levels.
Percentage change
May 10,1940: After a strong start to the year, investors turned nervous in April when Germany invaded Denmark and Norway. It was in May, though, that the bottom fell out, with the Dow falling 23 percent in two weeks. The downward spiral began on the 10th with the Nazi invasions of Belgium, Luxembourg, Holland and France, and the resignation of British Prime Minister Neville Chamberlain. On May 17, two days after Holland surrendered, the Dow fell 4.7 percent. Four days later, with reports that German troops had reached the English Channel, it fell another 6.7 percent. A build-up in military manufacturing, as the economy emerged from the Great Depression, sent GDP up 8.5 percent in 1940. The Dow ended the year with a loss of 12.7 percent.
Percentage change
Dec. 8, 1941: On Monday -- the day after the Japanese attacked the U.S. naval base at Pearl Harbor in Hawaii -- the Dow industrials fell 4 points to 112.52. The next day, with the United States now formally in World War II, it fell another 3 points. The index fell for the next five months, hitting bottom in April 1942 at 92.92—even as the post-Depression economy was growing at a double-digit, war-mobilized rate. But that growth had kicked up inflation, another worry for investors. Still, by the middle of 1942, the Dow began to edge back, on news of U.S. victories in the Pacific. It ended the year near 120. That same year, GDP grew 18 percent. By the end of 1945 -- the year the war ended -- the index had risen to 192.91. The end of the war, however, tipped the economy into a recession that lasted more than two years.
Percentage change
June 26,1950: Three days before the North Korean army crossed the 38th parallel and attacked South Korea, the Dow began to fall. On June 26, it dropped 10 points to 213.91. Uncertainty about a response to the hostilities led to a sharp decline during the next three weeks. By July 13, the index had lost 12 percent and was trading at 197.46. But on July 19, President Harry Truman announced that the United States would enter the war. His request to Congress for a $10 billion rearmament program boosted stock prices, particularly shares of aircraft, auto, oil, copper and steel companies. The economy grew by nearly 9 percent in 1950, and the Dow gained 17.6 percent that year.
Percentage change
Sept. 26, 1955: News of President Dwight D. Eisenhower’s heart attack over the weekend sent Wall Street reeling on Monday—losing 32 points to close at 455. The classic concerns over leadership during the period of Cold War tension weighed heavily on the market. And the Dow’s strong performance in the prior 21/2 years—up almost 70 percent since Ike’s inauguration—added to Wall Street’s anxiety. What’s more, the post-Korea War economy had turned mildly negative in 1954 and was just building momentum. Still, the event proved fleeting on Wall Street, with the Dow gaining 21 percent for the year.
Percentage change
Oct. 23, 1962: A day after President John F. Kennedy told the nation that Soviet weapons with nuclear capabilities had been placed in Cuba and that the United States was preparing for a possible military response, the Dow fell 1.8 percent. The next day it rallied 3.3 percent and continued to rally for the next month even as the potential for nuclear war loomed. The crisis seemed to have little effect on the economy that year; GDP grew at a 6 percent pace, and the consumer inflation rate was just 1.3 percent.
Percentage change
Nov. 22, 1963: On the Friday that President John F. Kennedy was shot and killed in Dallas, Texas, waves of selling hit the major markets. Within an hour of the news, $13 billion of stock value had been lost on the New York Stock Exchange as investors worried about the succession of leadership and the possible repercussions during a period of Cold War tension. The Dow industrials fell 2.9 percent to 711.50. On Monday, Nov. 25, the stock market was closed for the president's funeral. On Tuesday, the blue chip index jumped 4.5 percent to close at 743.50.
Percentage change
Oct. 19, 1973: On Oct. 19, two weeks after the start of the Arab-Israeli conflict known as the Yom Kippur War, Saudi Arabia, Libya and other Arab oil-producing countries announced an embargo on oil exports to the United States. The embargo remained in place until March 18, 1974, when most Arab oil ministers announced its end. Between 1972 and the end of 1974, oil prices quadrupled to about $12 a barrel. In the month before the embargo was announced, the Dow gained 7.7 percent to trade near 960. By Dec. 5, it dropped to 788, and a year later, on Dec. 5, 1974, it was at 587. Inflation jumped from about 3.4 percent in 1972 to more than 12 percent in 1974.
Percentage change
Aug. 8, 1974: Richard Nixon became the first U.S. president to resign from office on Aug. 8, 1974, more than two years after a break-in at the Democratic National Committee offices at the Watergate building in Washington. The next day, Vice President Gerald Ford was sworn in as president. Uneasiness about the state of the nation was reflected on Wall Street.
Percentage change
Oct. 19, 1987: The Dow began 1987 at 1,895.95 and surged almost 44 percent by Aug. 25, when it peaked at 2,722.42. But during the next two months it lost nearly 1,000 points, half of that on Oct. 19, when it plummeted 508 points. That 22.61 percent decline was its biggest one-day drop and is generally thought to have been triggered by: 1) an official's remarks that the dollar's value would be allowed to fall if Germany maintained tight monetary policy; 2) news of a bigger-than-expected trade deficit; 3) a tax proposal that would have reduced merger activity, and; 4) increased U.S.-Iran tensions. Many analysts expected the market shock to have widespread economic reverberations, but GDP rose 3.4 percent in '87 and 4.2 percent the following year.
Percentage change
Jan. 17, 1991: News of the U.S. military's early successes in the war against Iraq electrified investors who had worried about a disruption in Middle East oil supplies and the potential for inflation. But with oil prices tumbling—down $10 a barrel to about $21.44—investors bid up stocks. The Dow soared 114.6 points to close at 2,623. Gold dropped more than $30 an ounce to $397 in New York trading, and Federal Reserve Chairman Alan Greenspan speculated that the drop in oil prices might cut the recession short. But by the end of the year, GDP had contracted by 0.5 percent.
Percentage change
Aug. 19, 1991: News that Soviet President Mikhail Gorbachev had been ousted from office in a coup orchestrated by hard-liners opposed to Gorbachev's glasnost policies sent world markets reeling. The Dow fell 69.99 points to 2,898.03. Germany's DAX tumbled more than 9 percent. "Safe-haven" investments—gold, dollars and short-term U.S. Treasury securities—shot up amid concern the coup could lead to global instability. Oil prices and some defense stocks also rose. Global markets stabilized the next day with the Dow gaining 16 points.
Percentage change
Oct. 27, 1997: The economic domino effect that began during the summer in Thailand with a currency devaluation, and swept through Asia in subsequent months, hit Wall Street in October. Sharp declines in Asian markets, and worries that recession in one part of the world would drag down economies across the globe, sparked a wave of selling on Oct. 27. On that day, the Dow tumbled 554.26 points, exceeding 1987's "Black Monday" point drop. Trade tensions with Japan and warnings from Federal Reserve Chairman Alan Greenspan about "irrational exuberance" in the market were also mentioned as undermining investor confidence. Still, the economy continued to chug along, only halfway through an unprecedented 10-year expansion. GDP rose 4.4 percent in 1997 and another 4.3 percent in 1998.
Percentage change
Sept. 17, 2001: The U.S. equity markets were closed for four business days after the Sept. 11 attacks on the World Trade Center and Pentagon. Elsewhere in the world, however, investors sold heavily. When U.S. markets finally opened, a wave of selling sent stocks tumbling. The Dow fell a record 684.81 points on the first trading day after the attack despite a Fed interest-rate cut and talk of “patriotic buying.” With the economy wobbling even before Sept. 11, the shock of the attacks, combined with the disruption of businesses, 100,000 airline layoffs, likely insurance company failures and dent in consumer confidence contributed to a 14 percent drop in the Dow’s value for the week ended Sept. 21.
Percentage change
Printable version
Source: MSNBC research
REFINANCING BOOM
Home sales are not holding up so well. But mortgage rates are now approaching the lowest levels in more than a decade, and consumer refinancings of existing homes are are booming. Fleet Bank has been deluged with so many applications in the New England region that some of its offices are backed up for weeks.
The refinancings are putting large amounts of disposable cash into consumer pockets — $125 per month, for example, for any family that refinances a $100,000 mortgage from 8 percent to 6.5 percent. That extra cash — equivalent to a $600 tax rebate check every four and one-half months — puts a floor under consumer spending that not even a bunker-buster smart bomb can crash through.
All this, plus the likelihood of yet another stimulus package out of Washington, means that consumers have probably gotten as depressed as they‘re likely to get, and that every bit of bad news that possibly can happen — up to and including terrorist mass murder in downtown Manhattan — has already been factored into stock prices and is being worked through the system.
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From a geo-political perspective, there are huge risks ahead, including the possibility — some would say the likelihood — that the U.S. assault on Afghanistan will wind up bogging down U.S. forces in an un-winnable ground war in central Asia. At its worst , such a scenario would include an attempt by the Administration to extricate itself from the problem by widening the conflict to neighboring states like Iraq, Iran and Syria, in much the way Richard Nixon sought to extricate the U.S. from Vietnam by first spreading the conflict to Cambodia.
But for now, Americans have rallied behind their government as never before since Pearl Harbor, and foreign policy reverses may actually unite them even more. Meanwhile, the stock market likes nothing so much as a foreign conflict to get the bulls moving, and that may well be what is happening now. In the 19 months that followed the Gulf of Tonkin incident in August of 1964, America shipped an army of 200,000 men to Vietnam, and through it all the stock market racked up a gain of nearly 20 percent in value, with the Dow industrials peaking at 1,001 in February of 1966.
Mark Twain once remarked that history may not repeat itself precisely, but it certainly does seem to rhyme a lot, and with Friday’s release of the University of Michigan’s consumer sentiment survey for October we’ll have the first real indication of whether a long and strong bull market in stocks — reminiscent of the 1960s — may now be starting. |
