Confidence Up As Consumers Beat Forecasts

NEW YORK — Consumer confidence rose above projections in May, but a small dip in the expectations index may mean the rate of economic growth will not quicken in the coming months.<P>The Conference Board’s monthly reading of consumer...

NEW YORK — Consumer confidence rose above projections in May, but a small dip in the expectations index may mean the rate of economic growth will not quicken in the coming months.

This story first appeared in the May 29, 2002 issue of WWD.  Subscribe Today.

The Conference Board’s monthly reading of consumer confidence, which is based on a representative sample of 5,000 U. S. households and is a leading indicator of consumer spending, grew to a better-than-forecast 109.8 in May from 108.5 in April. Economists had predicted the index to climb to a more modest 109.2.

Buoyed by the economy’s sure if slow turnaround after a wave of corporate layoffs, lower earnings and the aftermath of Sept. 11, the present situation index increased to 110.3 from 106.8 last month. However, the expectations index dropped slightly to 109.4 from 109.6 in April, which indicates consumers remain cautious about the future rate of economic growth.

“Consumers’ upbeat mood about current business and labor conditions underscores the economy’s continuing recovery, but the latest retreat in expectations suggest growth will not accelerate in the months ahead,” said Lynn Franco, director of the Conference Board’s Consumer Research Center.John Lonski, an economist with Moody’s Investors Services, was sanguine about the confidence index, and said the trailing expectations index had more to do with geopolitical factors than any recent economic news.“There’s no surprise here. It’s not different from what we expected and is consistent with the pace of consumer spending of late,” said Lonski. “Expectations are down slightly due to the uneven performance of the equity markets, as well as world political tension and the threat of terrorism. But we’ve seen nothing in the economy, and in today’s latest batch of news on the economy, to suggest that we are in danger of slipping into a double-dip recession.”

For retailers, continuing uncertainty has eliminated many options for all but the most agile firms, according to Accenture retail group partner Steve Louis.“There’s a couple of key factors that lead me to believe we shouldn’t be so confident in the near term,” said Louis. “April unemployment numbers and jobless claims were up. The markets remain sluggish. There’s the war on terrorism and uncertainty in the Middle East, so what is the consumer thinking? It’s not like retailers can do anything to react to these numbers because the die is already cast. Looking ahead, only those retailers that are nimble and flexible enough will be able to take advantage of any positive changes in the economy.”In other economic news Tuesday, April personal income rose as expected by 0.3 percent, but personal consumption expenditures increased only 0.5 percent, 0.2 percent less than Wall Street had forecast. Real consumer spending gained 0.2 percent after remaining static in March while wages and salaries ticked up only 0.1 percent last month.Those numbers caused the market’s leading indicators to shrug off the consumer confidence news and fall precipitously.

The Dow Jones Industrial average slipped 122.68 points, or 1.2 percent, to close below 10,000 at 9981.58, while the Nasdaq dropped 9.32 points, or 0.6 percent, to 1652.17. The Standard and Poor’s 500 also slipped, shedding 9.27 points, or 0.86 percent, to close at 1074.55 in Tuesday trading.According to the Conference Board, more than 21 percent of consumers rate current business conditions as “good,” up from 19.7 percent last month, while 18.8 percent see current conditions as “bad,” down from 19.4 percent in April.

The percentage of people who said jobs are plentiful remained steady from March at 20.9 percent, while 21.9 percent said jobs “are hard to get,” down from 22.7 percent in April.””