Commentary

Consumer Confidence And The Titanic Orchestra

  • by July 18, 2001
Consumer Confidence And The Titanic Orchestra

You probably should not "blame it on the market," but rather pick your way through the minefield. There are several positive sectors to target, and many creative strategies to tackle the tough ones. But keeping informed and alert to the marketplace in which you're dealing is paramount!

From the AP and business press comes the most recent reports from the The National Bureau of Economic Research indicating (surprise) that the economy has definitely weakened enough in the past 12 months to cause economists to consider the possibility of a recession, typically defined as two straight quarters of economic decline. But so far there haven't been "two straight quarters…" so Georgia State University economist Rajeev Dhawan describes the current economic environment as a "growth recession" --- "slow growth in total output, income, employment and trade" but not a decline.

A "growth recession" contrasts sharply with the U.S. economy posting annual growth rates of better than 4 % from 1997 through 2000, with the rate hitting 5% last year. Most economists look for gross domestic product growth of less than 2% in 2001, recovering to 3% in 2002 and slightly above that in 2003. According to David Wyss, chief economist for Standard & Poor's/DRI, 2001 will continue to be "quite bumpy" as a whole, "but by the fourth quarter lower interest rates and the tax cut should be setting the stage for a strong 2002."

Despite the (modest) positives, however, economists are also wary of the potential causes for an economic stall like consumer debt, which surged to $13.9 billion in April and poses a threat to a brisk recovery in spending. That's an annual rate of 11.2 percent, almost all of it generated by credit cards.

Consumers, a key force keeping the economy afloat, continued their vigorous spending in May. That increase in consumer spending was led by a 1.2% jump in purchases of costly manufactured goods, such as cars and washing machines, following a 0.1% rise in April. Spending on non-durable goods such as clothes and food rose 0.5% in May. Spending on services grew by 0.3% for the second month in a row. The services category includes such things as gas and electric utilities, visits to doctors, bus and train fares and rent for housing.

"Consumers are staying in red and meanwhile keeping the overall economy in the black," said National Association of Manufacturers President Jerry Jasinowski

Forecasts for 2001 and 2002, vs 2000 actual

  +-----------------------+-------+-------+-------+   |  U.S. economy         |  2000 |  2001 |  2002 |   +-----------------------+-------+-------+-------+   |                       |
|       |       |   | Real gross domestic   |  5.0% |  1.8% |  3.0% |   | product (1)           |       |       |       |   | Unemployment          |  4.0% |  4.7% |  4.9% |   | ....Manufacturing
|       |       |       |   | Industrial production |  5.6% | -2.0% |  2.6% |   | Capacity utilization  | 81.3% | 77.0% | 78.4% |   | ....Consumer sector   |       |       |       |   | Consumer Price
Index  |    4% |  3.3% |  2.8% |   | Housing starts        |  1.61 |  1.54 |  1.46 |   | (millions of units)   |       |       |       |   | Auto/truck sales      |  17.3 |  15.7 |  15.7 |   |
(millions of units)   |       |       |       |   | ....Interest rates    |       |       |       |   | Federal funds rate    |  6.2% |  4.2% |  3.8% |   | 30-year Treasury bond |  5.9% |  5.7% |
6.2% |   | rate                  |       |       |       |   +-----------------------+-------+-------+-------+  (1) Adjusted for inflation  
Source: Georgia State University Economic Forecasting Center

But wait. A release from The National Association of Purchasing Management, as this Brief was being written, said that its monthly measurement of service sector spending rose 52.1 point in June--the largest increase in six months. A reading above 50 suggests an expanding economy, according to the NAPM. The measurement suggests that -- outside of manufacturing -- the economy is expanding without inflation.

More here.

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