IMPROVING OUTLOOK ELEVATES MARCH CONSUMER CONFIDENCE
Byline: Jennifer Weitzman
NEW YORK — Six months after the terrorist attacks, consumer confidence rebounded sharply in March to its highest level since last August, as Americans grew more optimistic about business conditions and job opportunities ahead.
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, rose to a better than expected 110.2 in March from a revised 96.4 in February. Both components of the index improved dramatically. The Expectations Index, the consumer outlook for the next six months that constitutes half of the overall measurement, rose 15.3 points, to 109.3 from 94.0, its highest reading all year, while the Present Situation Index, a reading of current consumer attitudes, improved 15.1 points to 111.5 from 96.4.
“Consumers’ confidence has been bolstered by the improvement in business and labor market conditions,” Lynn Franco, director of the board’s Consumer Research Center, said in a statement. “The latest gains are striking. The jump in the Present Situation Index is the largest gain experienced in 25 years, while the Expectations Index has not risen this sharply in nearly a decade. This new boom in confidence should translate into increased consumer spending and stronger economic growth ahead.”
Declines late in the session notwithstanding, the index helped nudge stocks up as the Dow Jones Industrial Average rose 71.69 points, or 0.7 percent, to close Tuesday at 10,353.36. The technology-driven Nasdaq Composite Index gained 11.68, or 0.64 percent, to 1,824.17.
“The economic recovery is here,” John Lonski, an economist at Moody’s Investors Services, said, citing the recovery by the equity market in March for much of the improvement in consumer sentiment.
He warned that while the stronger consumer confidence numbers give retailers some reason to look for slightly better-than-anticipated consumer buying, spending still will not be as robust as it was a couple of years back.
The recession, which began last March, was the mildest on record. However, the recovery has already placed the consumer confidence index 69 percent above its average for the first 33 months of the previous economic recovery, which lasted from April 1991 to December 1993.
Confidence still lags 20 percent below the index’s average in 1999 and 2000, Lonski said, suggesting that real consumer buying will not grow as vigorously as it did during that period, when spending and retail sales grew 4.9 percent and 7.9 percent per year, respectively. Lonski said he anticipates retail sales in 2002 to grow 5 to 5.5 percent by the second half of the year, better than the 3.5 percent yearly increase in 2001.
Consumers’ appraisal of current conditions improved significantly in March. Those rating business conditions as “good” increased to 20.7 percent from 17.6 percent, while consumers rating current business conditions as “bad” dropped to 18.1 percent from 22.8 percent. Consumers reporting that jobs were “plentiful” rose to 20.6 percent from 18.3 percent, and those claiming jobs were “hard to get” fell to 20.8 percent from 22.6 percent.
Consumers’ expectations for the next six months are also more optimistic. Those expecting an improvement in business conditions increased to 25 percent from 22.3 percent, while those anticipating conditions to worsen dropped to 6.3 percent from 11.1 percent.
The employment outlook has also brightened. Some 20.6 percent of consumers expect more jobs to become available over the next six months, up from 18.3 percent last month. Those expecting fewer jobs fell to 13.6 percent from 19.5 percent. In addition, roughly 22 percent expect their incomes to increase, up from 20.5 percent last month.
Lonski noted consumers’ assessment of future hiring is the strongest since September 2000 and is better than the average between 1997 and 2000. “Consumers’ views of future job opportunities are very upbeat and optimistic, which should be viewed constructively for consumer spending,” Lonski said.