Confidence collapsing after bullish market

By John Cunniff The Associated Press
Tuesday February 20, 2001

NEW YORK — Could those deteriorating consumer confidence figures be a measure also of how spoiled Americans have become after a decade of plentiful credit, easy payments, lots of jobs and rising stocks? 

Or do they represent instead a sense of fear absorbed from repeated reminders that a recession threatens, that inflation is on the doorstep, that unemployment will soar and that foreclosures will rise? 

Have things really gotten that bad or is the public mood more the reflection of leadership – economic, political, business, media – that has dramatized the negative possibilities at the expense of the positive? 

Something doesn’t quite jibe. The jobless rate remains at one of the lowest rates ever, cars are being sold in near-record numbers, homebuying is strong and inflation still hasn’t roared. 

Even on-line shopping, which has provoked much of the negative commentary over the past year, rose in the final quarter of 2000 to $8.7 billion, a huge jump over the previous quarter’s $6.4 billion. 

These indicators and more suggest that many people still haven’t lost their confidence, but now the question becomes one of how long they can sustain their elevated expectations against the negative onslaught. 

Such musings are pertinent to understanding how quickly consumer psychology can flip from an attitude of everything-is-possible to one of anxiety and foreboding, as expressed in the consumer surveys. 

The flip, or potential flip, has so concerned Alan Greenspan that he has now conceded that the future depends on the consumer not being scared into retreat.  

But this is the same Greenspan, chairman of the Federal Reserve, who so publicly expressed his own recession fears in January. 

And so, upcoming surveys may be much more significant than those of the past.  

Conceivably, they could reflect the attitude of leadership as much as those of consumers. It depends on leadership’s emphasis. That focus could be on efforts to enhance consumer buying power, including lower interest rates, a potential tax cut, the odds against recession, the still-low jobless rate despite highly publicized layoffs. 

The positive indicators might be weakening, but they still remain among the better all-time economic numbers. And the stock market’s numbers could fall even more, but the long-term indicators still remain bullish. 

All the weakening numbers represent a descent from dazzling highs and most of them would still have a long way to go before reaching 1993 lows, which at the time weren’t considered all that bad. 

They could go even lower; there could even be a serious recession. Who could promise there won’t be? But the surprise would be if there is one. 

Standard & Poor’s economist David Wyss puts the situation in context with his February U.S. Forecast Summary. The cushions that should soften the landing might be getting thinner, he says, but they’re still there. 

“Many of the original problems that damaged consumer confidence in the second half of 2000 are now declining,” he explains, observing that “the picture still looks more like 1995 than 1990.” 

In 1990 the economy was shrinking. In 1995 it was going into a great expansion. 

John Cunniff is a business analyst for The Associated Press