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 97.3 in January from a revised 94.6 in December.
While a wave of corporate layoffs, a battered economy and shock waves from Sept. 11 chilled consumers’ economic views throughout much of last year, 2002 has so far sent the index on an upward path, suggesting an economic recovery could be close at hand.
“While the economy has not turned around, the worst may well be over,” Lynn Franco, director of the board’s Consumer Research Center. “The upturn in confidence is being driven by growing confidence about the business outlook and job prospects. Consumer expectations for the future are now higher than they have been in more than a year.”
Investors seemed more focused on Enron Corp.’s downfall and the accounting practices of corporate America than on signs of an economic comeback. The Dow Jones Industrial Average tumbled 247.51 points, or 2.5 percent, to close Tuesday at 9618.24, while the more broad-based Standard & Poor’s 500 Index fell 32.42 points, or 2.9 percent, to 1100.64. The technology-driven Nasdaq Composite Index retreated 50.95, or 2.6 percent, to 1892.96.
John Lonski, an economist at Moody’s Investors Services, said, “The index tells us the recession could be all but over. December or January stands to be declared as the final month of the recession.”
Retailers also can be encouraged that consumers are likely to spend at a livelier pace at the beginning of the next economic recovery than they did at the start of the previous one. Lonski said consumer confidence today has outpaced the average from the first 33 months of the previous economic recovery — from April 1991 through December 1993 — by 49 percent, when the index averaged 65.3.
Still, the economist warned retailers face a myriad of problems despite the apparent pickup in consumer spending, including the inefficiency of much of the retail space created during the go-go days of the mid to late Nineties, when consumer confidence was at a 30-year high. Also, while on the rise, the index stands 15.9 percent below its January 2001reading of 115.7. The index stood at 144.7 in January 2000. “Things are getting better, but you cannot lose sight of the fact that confidence remains well under the average of the boom period between 1996 and 2000, when the index averaged 127.2,” he said.
James Glassman, director of U.S. economic and policy issues research at J.P. Morgan, forecast annualized growth of 4 percent during the final quarter of the period versus 1 percent for the third quarter. He said that cautious inventory practices this past holiday may have been a bit extreme.
Now they have to work to keep inventories from being depleted and they might do better,” Glassman said.
The biggest gain in the monthly report came in its reading of consumer attitudes about conditions six months from now. The expectations measure rose to 96.9 from 92.4, the highest reading in the 12-month period. Those expecting an improvement in business conditions rose to 25 percent, up from 22.2 percent in December, while those anticipating conditions to worsen fell to 9.6 percent, down from 11.6 percent.
The employment outlook was also more optimistic. Currently, 18.8 percent of consumers expect more jobs to become available during the next six months, up from 16.5 percent in December.