Best Strategy: Temper The Initial Enthusiasm?

Jan. 13, 2005
By John S. McClenahen It's difficult not to be economically excited by the Conference Board's latest consumer confidence index. The New York-based business research group's index, which had been on the decline for four months, rebounded sharply this ...
ByJohn S. McClenahen It's difficult not to be economically excited by the Conference Board's latest consumer confidence index. The New York-based business research group's index, which had been on the decline for four months, rebounded sharply this month, rising to 81.0 (1985=100) from 61.4 in March. Both elements of the index posted impressive gains. The expectations index rose to 84.8 in April from 61.4 in March, and the present situation index advanced to 75.3 from 61.4. "The swift outcome in the Middle east has helped quell consumers' short-term concerns," states Lynn Franco, director of the Conference Board's Consumer Research Center. "While an increase of this magnitude occurred after the Persian Gulf War in 1991, this post-war surge differs in that both components of the [consumer confidence] index posted gains," she says. "The increase in the present situation index, especially in labor market conditions, may very well signal a turnaround in confidence and a more favorable outlook for consumer spending." Since consumer spending accounts for about two-thirds of the U.S. economy, that could be good growth news for the rest of 2003. However, David A. Rosenberg, chief North American economist at Merrill Lynch & Co., New York, urges caution. He, too, looks back at 1991 and observes that the peak in consumer confidence occurred as the Persian Gulf War ended. "By yearend, the index actually closed below the level prevailing just prior to the onset of Desert Storm," he stresses.

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