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American Morning

Consumer Confidence Drop Sharper Than Expected

Aired April 24, 2001 - 10:18   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: We're going to continue to talk more about these latest numbers on consumer confidence. Joining me now from Chicago is Terry Savage, investment advisor and personal finance columnist with the "Chicago Sun-Times."

Hi, Terry.

TERRY SAVAGE, "CHICAGO SUN-TIMES": Good morning, Kyra.

PHILLIPS: All right, we all just got the numbers and the first thing I heard out of your mouth was wow.

SAVAGE: Well, that was a bigger decline than the Street was expecting. They expected a drop, the consensus was, to about 112. We are now, as you noted, down back to 109. There is a sense -- by the way, I should point out that these numbers were, this survey was cut off before the Fed cut interest rates at its mid-meeting surprise last Wednesday. So there's, there was then a sense that the Fed had maybe an advanced peek, which I doubt they did, but some real concerns over consumer confidence and that that was why they cut.

Now the fact that it's dropped again more than expected, probably the markets are liking it because there's a sense that at the mid-May meeting the Fed may take this decline in confidence again as a sign to cut one more time.

PHILLIPS: Well, the two concerns here, deteriorating business conditions and less favorable job market, how do you bounce back? I mean how do you bring these two concerns around?

SAVAGE: Well, we'll find out if, in fact, that last week's Fed rate cut might stimulate consumer confidence. It actually could go one of two ways. We will have a revision of these numbers come out mid month next month and we'll be able to see the impact of the Fed rate cut on consumers' feelings. Either the rate cut could make consumers more worried, uh-oh, the Fed's really worried, or it could make consumers a little bit happier, more confident that the Fed will not let the economy slide into a recession.

This survey is based on questions about what consumers feel now about present conditions about a couple of things, present business conditions, their own income prospects and the outlook for employment. How do you feel now about the availability of jobs and what do you think it'll be like in six months? About your income, how's it doing now and what do you think it'll be like in six months?

So, this is a pretty good pulse of the consumer and we'll see what happens, if the Fed cut has done some magic and made consumers feel more confident.

PHILLIPS: All right, well, Terry, here's a little glimmer of hope here. We have a CNN/"USA Today"/Gallup poll talking about, you know, present conditions and here the numbers show that 60 percent of folks say good now but in February they said 80 percent. So this shows a little decline.

However, there was a little light or ray of sunshine talking about the economic conditions, asking if they think that there is a recession, a slowdown or growth going on, and 66 percent don't say recession. They say slowdown. So that's good, right?

SAVAGE: Well, I think that's the result of a very concerted sort of a PR effect effort on the part of the Fed and the Fed governors going around the country vigorously denying that we are already in a recession. But I'll tell you something about this big drop in consumer confidence. Last September at its highs it was at 142.5. And now we have dropped down to 109. A drop of that magnitude has happened in this short a time, has happened only five times before since they started reported these numbers back in the late '60s, and every single time we have had a drop in consumer confidence of this magnitude, it has happened during a recession.

Now, I don't care what label you put on it, and there are plenty of ways to label a recession, but there's no question that the dividing line between recession and slowdown is kind of more of a P.R. effect than an actual economic decision-making thing.

PHILLIPS: Good insight, Terry Savage, "Chicago Sun-Times." Thanks so much for making sense of all this on such short notice.

SAVAGE: Thanks, Kyra.

PHILLIPS: All right. And if you have more questions about the economy or investments, you can ask Terry Savage online. Just log onto her Web site at terrysavage.com. No doubt she'll answer your questions.

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