John Berry: "Consumer Sentiment Hurt by Stock Fall"
washingtonpost.com
"The Beige Book", 6/12/02:
federalreserve.gov
"Forecasts from Ninth Annual Auto Outlook Symposium", 6/3/02:
chicagofed.org
"Plunge Protection Team" (PPT):
#reply-17603292
===========================
Selectedd highlights.
>>> Plunge Protection Team
By Brett D. Fromson
Washington Post Staff Writer
Sunday, February 23, 1997; Page H01
The Working Group's main goal, officials say, would be to keep the markets operating in the event of a sudden, stomach-churning plunge in stock prices -- and to prevent a panicky run on banks, brokerage firms and mutual funds. Officials worry that if investors all tried to head for the exit at the same time, there wouldn't be enough room -- or in financial terms, liquidity -- for them all to get through. In that event, the smoothly running global financial machine would begin to lock up.
These quiet meetings of the Working Group are the financial world's equivalent of the war room. The officials gather regularly to discuss options and review crisis scenarios because they know that the government's reaction to a crumbling stock market would have a critical impact on investor confidence around the world. <<<
===========================
>>> Consumer Sentiment Hurt by Stock Fall
Rebound May Slow, Economists Say
By John M. Berry
Washington Post Staff Writer
Saturday, June 15, 2002; Page E01
Over the past month, the tumbling U.S. stock market has shed more than $1 trillion in value, damaging both consumer and business confidence and causing economists and government policymakers to become concerned that the economy may grow more slowly in the second half of this year than they have been expecting.
The University of Michigan said yesterday that its preliminary consumer sentiment index for this month fell sharply, to 90.8 from a final May reading of 96.9, far more than many analysts had anticipated. The connection between changes in consumer sentiment and spending is hard to pin down, but many economists believe there is at least a loose one. The link between business confidence and spending may be stronger.
"Equity markets have continued to weaken almost daily since early May, with potentially serious consequences for the real economy," said economist Joseph T. Abate of Lehman Brothers in New York. "The tougher financial climate has damaged corporate sentiment, reducing the willingness of CEOs to undertake new capital projects, construct new buildings or hire additional workers. Rather, their focus has been on improving the companies' balance sheet and boosting cash holdings.
"Similarly, the weaker stock market has reduced household equity wealth by over $1 trillion since mid-May, and raises the odds that consumer confidence could fall sharply in the coming months," Abate said.
But something more than a sour stock market seemed to have affected the University of Michigan's sentiment index, according to analysts there.
"Consumers became much more concerned about the outlook for the national economy" in early June, a university statement said. "Importantly the decline in the sentiment index was much larger among households with incomes below $50,000 than among upper-income households."
That result was unusual because for almost all of the past 2 1/2 years, households with lower incomes have had a more positive opinion about the economy's future than those with higher incomes, perhaps because the latter have been more strongly affected by falling stock prices.
An important feature of many economic forecasts for the second half of the year is a prediction that consumer spending will remain relatively robust until business purchases of new equipment begin to rise again at a healthy pace. So far, however, there are indications that the large drop in such business spending that began a year and a half ago is ending, but little sign that businesses are beginning to increase their spending.
If consumer spending were to weaken, any increase in business investment might be delayed until it was clear the added production capacity was needed, analysts said.
Economists at UBS Warburg in New York told their firm's clients that the Michigan survey results raised questions about how consumer purchases will fare in the next several months.
"The slump in the stock market likely helped to drive consumer sentiment to a four-month low, but the drop seemed more deeply rooted because it was deeper among households with incomes under $50,000," the economists said.
"Consumers apparently anticipate that growth will slow and the unemployment rate will stagnate over the balance of this year. That combination is likely to keep a lid on household spending," the economists said. The plunge in the sentiment index, coming on the heels of a substantial drop in retail sales last month, reported Thursday by the Commerce Department, "is likely to further fuel worries that consumer spending is now faltering."
However, some other analysts had a more sanguine view of the prospects for consumer spending.
"This is just a temporary lull in consumer spending growth," said Mickey Levy, chief economist at Bank of America in New York. With firms finding ways to achieve large gains in efficiency, "the stage is set not just for profits to increase but employment as well." And when that happens, consumer spending will speed up again, Levy said.
Meanwhile, the Federal Reserve reported that its industrial production index rose 0.2 percent last month, the fifth consecutive monthly increase but also the smallest of the five.
In addition, the April increase in the index, which measures the output of U.S. factories, mines and utilities, was revised downward slightly to 0.3 percent. Since the manufacturing sector began recovering in January, factory production has climbed only 1.1 percent.
The key reason the industrial production increase last month was not greater was a 0.9 percent decline in the production of motor vehicles and parts. Automakers' production schedules for June imply a bounce back to roughly April's production level, but the pace of vehicle assemblies might be scaled down if sales were to soften, analysts said.
© 2002 The Washington Post Company <<< |
