Discount The Drop In U.S. Consumer Confidence

By John S. McClenahen Because consumer spending accounts for about two-thirds of U.S. economy, there would be a natural and predictable tendency to be very concerned about September's drop in the Conference Board's Consumer Confidence Index, the fourth consecutive monthly decline. The New York-based business research group's index now stands at 93.3 (1985=100), down 1.2 percentage points from August, a product of a continuing weak U.S. labor market. However, don't overlook the fact that while a representative sample of 5,000 U.S. households is not now as optimistic about current business condition as it was a month ago, people are a bit more optimistic about the future than they were in August. The Conference Board's "Expectations Index," a component of the larger consumer confidence measure, rose slightly to 96.5 in September from 95.5 in August. What's more, notes Karen Dexter, an economist at Merrill Lynch & Co., New York, "confidence measures have not been the best predictor of [consumer] spending this summer." She points out while consumer confidence fell in July and August, consumer spending remained strong. Indeed, she says consumer spending probably is growing at a 4.5% to 5% annual rate in the current calendar quarter.

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