Consumer Confidence
THROW AWAY THE MARKET index. Forget interest rates. And don't bet
on the GNP. If you want the most accurate forecast of the American
economy you have to turn to an instrument so sensitive it's at the
cutting edge of research--the mind of the ordinary consumer.
What transforms the economically untutored consumer into the most
sophisticated of economic indicators is the Index of Consumer
Expectations, the individual and aggregate answers to a questionnaire
that probes the motives, aspirations, intentions, and values of guys and
gals next door each month. Constantly tuned to pick up the slightest
changes in attitudes and behavior, the survey is the only U.S. Department
of Commerce leading indicator to assess the human factor in economic
affairs.
That factor has been growing steadily since World War II, with
large numbers of people gaining discretionary income, and common items
like cars and washing machines taking on all the characteristics of
investment goods. The luxury to make purchases according to a personal
timetable opened up the economy to the influence of the psychology of the
consumer, says Richard Curtin, Ph.D., who keeps tabs on it at the
University of Michigan's Institute for Social Research.
The latest report pegs the economy on a continuing, if slow, road
to recovery from a mild recession, with consumers less optimistic than
they were in the mid-'80s but far more willing to spring for big-ticket
items than they were last January. "The recession is in an ending stage,"
says Curtin, who doesn't expect consumers to be forecasters of the
economy. "The index taps their sense of underlying confidence in their
own personal financial situation, which is influenced by the economy as a
whole, for the short term and for the next three to five years."
What do consumers know and how do they know it? They're the first
to sense when factory orders are down or when a neighbor loses her job.
They know when interest rates go up, because the mortgage goes up, as do
other installment loans. And when inflation escalates, their purchasing
power erodes. All conspire to create uncertainty about their own
financial situation, and unwillingness to incur new debt.
"After the invasion of Kuwait," says Curtin, "rising uncertainty
led people considering big-ticket items to keep their commitments short."
That much was expected. A Mideast war threatened gasoline prices, and
past experience had taught how a rise in oil prices could destroy the
economy.
But for the first time in economic history, consumers confined the
perception of gloom to the short term. They told Curtin's surveyors that
they didn't plan major changes because they expected the economy to
revert back to normal in the long run. In the past, every dramatic event
shifted the entire constellation of attitudes. What's new, concludes
Curtin, is that consumers now have a greater sense of stability, and that
in turn stabilizes the economy.
"Consumers today are less likely than ever to interpret new
developments in a way that leads to drastic changes," Curtin says.
"That's because the baby boomers have experience with a wide range of
economic times; they've seen these boom and bust cycles throughout much
of their adult life. And their greater sense of stability in the economy
psychologically dampens the impact of these changes."
It's possible that consumers will revert back to older patterns.
But Curtin doesn't see evidence of that happening any time soon.
Tags:
american economy,
big ticket items,
consumer,
consumer confidence,
consumer expectations,
curtin,
department of commerce,
discretionary income,
economic affairs,
economic indicators,
economy,
forecasters,
gnp,
Index,
investment goods,
leading indicator,
market index,
mid 80s,
personal financial situation,
personal timetable,
shopping,
stability,
u s department,
washing machines
