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CNN Today

Why Is Consumer Confidence Down?

Aired December 28, 2000 - 2:44 p.m. ET

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

ANDRIA HALL, CNN ANCHOR: American consumers are concerned about the economy. Consumer confidence dipped again in November. Now this is the third straight decline in the index. The drop is viewed as evidence the U.S. economy is slowing.

Well markets have been mixed today. Right now, the Dow Jones industrial is -- let's see, it looks like it is up at 80, and there are expectations the Federal Reserve may soon trim interest rates. What will that mean for your pocketbook?

Donald Ratajczak, director of the federal -- excuse me, Donald Ratajczak, the director of economic forecasting at Georgia State University -- I was going to give you a real boost in your position there -- you're joining us with some insights now.

DONALD RATAJCZAK, GEORGIA STATE UNIVERSITY: I'll take the Federal Reserve job.

HALL: I know you wouldn't mind that, right?

I think most people want to know if the Federal Reserve is going to drop interest rates at this point?

RATAJCZAK: Well, the Federal Reserve almost certainly is, unless this week after Christmas is a huge week. And the evidence is that it's an OK week but not huge. So the likelihood is that interest rates will fall, certainly by the end of January.

There's some talk that if the employment numbers that come out a week from Friday are soft, that they may actually cut a quarter of a point then. My guess is they'll wait until the end of January, but they definitely will cut.

HALL: And when that -- if and when that happens, because we know you're speculating, what will that mean for the marketplace?

RATAJCZAK: Well, it's more psychological, a quarter of a point, than anything else. I think what people would be hoping is that we would get a positive response on Wall Street, and the stock market would start to stabilize or begin a rally, and as a result this worry that has developed in the consumer -- they're not yet totally disturbed, they're just concerned. Something out there doesn't look quite as good as it used to. And if the market starts trending up, they'll be willing to spend again. HALL: Donald, what are all the ingredients that go in this pot of consumer confidence? Did the Christmas sales play any role in that?

RATAJCZAK: Well I think you have to flip it the other way around. The fact that consumers were getting nervous about the economy caused them to delay spending to be a little bit more conservative in what they bought. They bought clothing because they needed it. They didn't buy the gadgets because they didn't need the gadget. And so they were a little more concerned about the economy. They still feel that their job is secure, but basically there's this worrisomeness that the consumer is trying to work through.

HALL: Now there was another figure that which came out, and I understand this is a separate report. But the Labor Department said that new claims for state unemployment insurance fell sharply last week. Explain that, and is there any correlation at all?

RATAJCZAK: Well, what you need is several weeks of movement in those claims, because in any given week one firm can make a strategic shift, and all of a sudden you see a big jump in the numbers. So you do have to look through several weeks. The numbers are high. They're not out of what the -- we call the normal range. Anywhere between 300,000 and 350,000 is really normal. Now last we it was 356, so that was starting to get into a definite slowing economy. But we came back down to 333, and that's solid.

HALL: So that's within the range that you're comfortable with.

RATAJCZAK: Yes, but it's not a tight labor market anymore, it's just a normal labor market.

HALL: We've gotten so used to a tight labor market, people are expecting that.

RATAJCZAK: Well I think there is some of that, but, you know, basically there's some positives in the moderate selling, that we can now find replacements for the quality workers that we've been losing.

HALL: All righty, John Ratajczak with Georgia State University, thank you very much, appreciate that.

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