Newspaper article THE JOURNAL RECORD

Can Latest Burst of Consumer Confidence Endure?

Newspaper article THE JOURNAL RECORD

Can Latest Burst of Consumer Confidence Endure?

Article excerpt

Consumer confidence is a fickle thing. The economy has surged since October, in large part because Americans seem to be feeling more confident about their jobs and their incomes. So they have gone shopping.

But sometimes a major event, like a military victory or a presidential election, can cause people to feel better off than they actually are. And after a while, the optimism disappears, along with the surge in shopping and economic growth.

That possibility makes the consumer confidence surveys that will be conducted over the next six weeks very important in gauging whether a strong recovery has finally arrived after nearly four years of weak growth or outright recession.

Consumer confidence has shot up since Election Day, but that is also the problem. Is Bill Clinton's election the only reason for the surge in optimism about jobs and higher wages? If so, can the optimism endure?

"Without doubt, there has been a Clinton effect on the polls, just as there was a Persian Gulf effect," said Richard T. Curtin, director of the University of Michigan Consumer Surveys, referring to the brief surge in consumer confidence and economic growth in 1991, after the gulf war ended.

"People have a firm expectation that Clinton will do something to steer the economy to better times. It is the anticipation of the change that has provided the initial stimulation, and it can wear off quickly."

What the anticipation has done is to encourage people to increase their spending by more than the rise in their incomes. To cover the shortfall, people have cut into savings or they have borrowed more.

The hope is that the increase in retail sales, particularly for Christmas, will push up production as stores are restocked.

And companies will finally hire more workers to produce the extra goods, spreading fresh income through the nation that can be used for more spending, thereby sustaining a recovery.

The increased hiring did not happen during the surge after the Gulf War. Nor did it happen during another brief surge in consumer confidence and the economy last spring.

Corporate America, bent on becoming more efficient and cutting costs, has managed to increase output, when necessary, without raising payrolls. And that resistance to hiring or raises, still in evidence, soon saps public confidence and takes the pleasure out of shopping.

"The problem is that we have been burned twice and people are nervous that they might get burned again," said David Wyss, chief economist at DRI McGraw-Hill, which produces economic forecasts. …

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