Tuesday :: Feb 25, 2003

As Consumer Confidence Heads South...

by Steve

Those of you more seasoned than me in economics and finance would argue against making too much of daily or weekly moves in the markets, and rightly so. However, I do feel that consumer confidence is a barometer that matters, given the portion of our economy that is driven by consumer spending.

So although it may not be significant that the stock market is down noticeably today, it is worth looking at the cause: consumer confidence is tanking while people are putting their money in what they feel is the one safe investment: real estate. And given the predictions from some economists that we may be seeing a bursting of the real estate bubble in the coming months, is it possible that even this strength in the housing markets may be worrisome? Is a middle class wipeout coming in the real estate market similar to the recent equities market wipeout?

The drop in the consumer confidence number was truly startling, given how much lower it was than what analysts were predicting:

The Conference Board, a business research group based in New York, said its closely watched index of consumer confidence sank to 64 from a revised 78.8 in January. Economists, on average, had expected a reading of 77, according to Briefing.com.

It was the lowest reading for the index since October 1993. It was the fifth-largest one-month drop on record and the biggest one-month drop since the 17-point drop in September 2001, which followed the Sept. 11 terror attacks.

"Lackluster job and financial markets, rising fuel costs, and the increasing threat of war and terrorism appear to have taken a toll on consumers," said Lynn Franco, director of the Conference Board's Consumer Research Center.

The Conference Board's expectations index, which measures how consumers feel about the future, dropped to 65.6 from 81.1, while the present situation index fell to 61.6 from 75.3.

"This month's confidence readings paint a gloomy picture of current economic conditions, with no apparent rebound on the short-term horizon," Franco said.

Given that fuel prices are not likely to be heading down anytime soon, the cash-strapped nature of state governments, and the lack of an uptick in hiring activity no matter how well the Iraqi invasion goes, what possible reasons are out there for a turnaround in these numbers soon?

Steve :: 11:11 AM :: Comments (2) :: Digg It!