Rising optimism buoys hopes for economy
You can't keep a good American consumer down - at least not for long.
Though buffeted by terrorism and war, recession and layoffs, Americans looking to the future see brighter days ahead.
While that buoyant mentality alone isn't necessarily enough to lift the economy, it comes alongside falling interest rates and a growing buildup of bank-account cash.
In that context, the growing economic optimism, reflected in a new Christian Science Monitor/TIPP poll, may be pointing the way out of the economic slump that began in March.
"Americans across the board are seeing a rosy economic future ahead," says pollster Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, which conducted the poll.
The poll's index of economic optimism jumped to 60.5, up from 56.7 last month and from a barely positive 52.1 in a September survey just prior to the terrorist attacks
Since that September low, Americans have become rapidly more chipper in their outlook for the overall economy - one of three components of the optimism index. The six-month outlook jumped from a negative 47.4 in November into positive territory, 57.1, for the first time since the survey began in February.
The other two components - personal financial outlook and confidence in federal policies - have also risen since September. Support for federal policies surged in October, following the terrorist attacks, and slight drops since then still leave that indicator at a strongly positive 62.1.
Despite the rising optimism in the poll, which provides an early, broad-based gauge of consumer confidence each month, many are cautious.
Toni Harmon won't be putting as many presents under the Christmas tree this year for her 17-year-old daughter. "I'm cutting back a little," says Ms. Harmon, an account executive at an advertising agency in Brandon, Fla. "I'm trying to put some money away, in case something happens ... say, the economy gets worse."
Still, low interest rates are helping many consumers.
Car sales were solid in October and November, with buyers tempted by zero-percent financing. Sales of personal computers have brightened. And holiday markdowns have drawn in enough customers to boost retail sales in general by about 2 percent from a year before.
Since two-thirds of the economy is driven by consumer spending, Mr. Mayur figures the mostly bullish outlook of Americans means the recession may already have ended or will do so in the first half of 2002.
Most economists agree a recovery will come in the next six months.
Richard Hoey, chief economist at The Dreyfus Corp., New York money managers, says the slump will end in the spring, thanks in part to rebounding stock prices.
Meanwhile, both the Federal Reserve and the federal government are stimulating the economy. Economists were expecting the Fed to lower interest rates for the 11th time this year at a policy meeting yesterday.
Though an "economic stimulus" package is still tied up in Congress, Washington did launch a tax cut last June and has approved extra spending to help the struggling airline industry and attack-ravaged New York City.
That, says David Wyss, chief economist of Standard & Poor's in New York, should turn the economy around in the first quarter as "consumers get back to normal."
Jan Hatzius, an economist at Goldman Sachs & Co., a New York investment firm, figures the drop in oil and natural gas prices - by 40 percent and 60 percent respectively since a year ago - plus the warm weather are providing "a well-timed cushion to US consumer finances."
Household energy outlays this winter will be about $80 billion below last year's level, he says. That's comparable, at an annual rate, to last summer's tax rebates.
Further, it helps offset the decline in year-end pay. That hit to employees could reach $40 billion, reckons Hatzius.
Ms. Harmon, for one, isn't sure whether her employer will be providing a bonus like they did last year. "They haven't said anything yet," she says.
Many firms are eliminating year-end bonuses and some are freezing pay.
Overall, wages and salaries fell 0.3 percent in October as layoffs multiplied, the largest decline since February 1994. But consumer spending rose 2.9 percent.
The layoffs have pushed the US unemployment rate to 5.7 percent, the highest since August 1995. Almost 800,000 jobs have been lost in the last two months.
On the positive side, the nation's money supply - the fuel for economic growth, has been growing rapidly. One measure of money known as M2 - which counts currency, checking deposits, money-market accounts, and some savings deposits - has ballooned 10.9 percent in the past year.
That dose of money could boost domestic purchases in a big way.
"Financial market participants, including the Lawrence Welk of central bankers, Mr. Alan 'Bubble Machine' Greenspan, will be flabbergasted," predicts Paul Kasriel of Northern Trust Co. in Chicago.
Mr. Wyss isn't so sure. He figures much of the extra money has been moved out of the stock market into money funds - but still represents savings not cash for spending.