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Plunge In Consumer Confidence Indicates Stumbling U.S. EconomyAired February 27, 2001 - 2:02 p.m. ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
NATALIE ALLEN, CNN ANCHOR: Now, we focus on President Bush, who steps into the bully pulpit tonight to argue for a big tax cut to help prevent recession. He will have a fresh trio of economic reports to help him make the case.
The mighty U.S. economy is indeed stumbling after a decade of record growth.
CNN financial correspondent Lisa Leiter is in Chicago today to report on the new economic numbers and gloomy consumers -- Lisa.
LISA LEITER, CNN CORRESPONDENT: Thanks, Natalie.
Well, you are absolutely right. We did get further signs today, weakening in the economy.
And the most important of these reports is the consumer confidence report. And consumer confidence plunged again this month to its lowest level.
Since June of 1996, whether it's falling stock prices, rising energy prices, all of those layoff announcements, and all of the talk about recession, all of those things have eaten away the consumer confidence over the past few months.
Now, confidence is a closely-watched indicator of the economy because if people are feeling bad about their job prospects or their finances, they might not be willing to spend. And consumer spending accounts for two-thirds of economic growth.
(BEGIN VIDEO CLIP)
MICKEY LEVY, CHIEF ECONOMIST, BANK OF AMERICA: It looks like in the first quarter, you're going to have another 1/4 of 2 1/2 to 3 percent real consumption growth despite the consumer growth numbers.
So the way I would add things up is, you know, the decline in consumer confident, while it hasn't translated to date into declining consumption, it does pose a risk.
(END VIDEO CLIP)
LEITER: The jobs in consumer confidence is already taking its toll on the housing market. Sales of new homes in January fell 10.9 percent. That's more than expected. But it comes after a very big jump in new home sales in December. So economists are saying that the housing market still is relatively strong.
Now, so far as stock market goes, it's lower now in the wake of these reports. There have been some buying earlier on hopes that these weak reports might force the Fed to come in and cut rates before its policy meeting on March 20th -- Natalie.
ALLEN: Hey, we will see if that happens. Thanks, Lisa Leiter.
Well, it's one thing to measure unemployment or sales; those are hard numbers. But how do the experts get inside the minds of American consumers to figure out if they are confident about the economy? Or pessimistic, for that matter?
We asked CNN's Garrick Utley to find out.
GARRICK UTLEY, CNN CORRESPONDENT (voice-over): They are the only leading economic indicator that really counts: we the people, we the consumers. Because our spending accounts for more than two-thirds of all economic activity in the United States.
Oh yes, we measure how long or short the unemployment line is, how high or low the inflation, how many new houses are started, and what a mortgage will cost to own that dream home.
(on camera); But these are simply reflections of ourselves, our confidence as consumers of toothpaste, cameras, clothing, homes, lawnmowers, movie tickets, everything we spend money on or go into debt for.
(voice-over): And how do you measure consumer confidence, our confidence about what's coming?
With monthly polls. In this one for The Conference Board, a business organization, 5,000 printed questionnaires are sent out to American households. The results of the 3,500 or so returned are tabulated in Toledo, Ohio.
Each family is asked what it thinks of business conditions today, and what they will be in six months from now. The same for job prospects today and in six months. And what each family thinks its income will be in six months.
LYNN FRANCO, THE CONFERENCE BOARD: There is more of a perception as to where we are headed. And I think there we see that the fear factor has really kind of seeped in. And we see that consumers are very alarmed about where the economy is headed.
UTLEY: As the hopes and anxieties of consumers rise and fall, there is that chicken-and-egg question. Is our confidence, or lack of it, the result of what is happening to us? Or a reaction to what we hear others saying will happen?
An oracle, like Alan Greenspan, or even a president.
GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: A warning light is flashing on the dashboard of our economy. And we just can't drive on and hope for the best.
UTLEY (on camera): Whatever presidents and pundits may say, what is amazing about consumers is how well they can sense and even know what's coming.
Look at this.
(voice-over): This line shows the opinion of American consumers, from the mid-1960s to the mid-1990s, as to whether they thought interest rates would be higher or lower, 12 months in the future.
This line shows what interest rates actually did over those three decades.
Not a bad prediction; which suggests that we may be more the chicken than the egg of an economy, which will be what we think it will be.
Garrick Utley, CNN, New York.
LOU WATERS, CNN ANCHOR: Then there's this wallet-opener. There are so many credit cards floating around now, if every American consumer spent to their limit, the total debt, for the first time, would approach $3 trillion.
The Consumer Federation says there's one good reason for this: Credit card companies have aggressively stepped up their marketing of plastic. Even though more of us are using more credit cards, bankruptcies fell almost 6 percent last year.
The Consumer Federation points out that credit card companies want to see more of us in debt. They're lobbying hard now for new bankruptcy laws that make it more difficult to wipe away credit card debt.
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