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The GW Hatchet


The GW Hatchet

Serving the GW Community since 1904

The GW Hatchet

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Consumers leery of economy, recession possible

Posted 2:32 p.m. Nov. 4

by Carolyn Polinksy

(U-WIRE) WASHINGTON–Consumer confidence numbers fell sharply in October, giving way to fears of a poor turn-out for the holiday shopping season and a future recession. The index measuring how Americans feel about the state of the economy dropped 14.3 points, from 93.7 to 79.4, according to a report released on Tuesday.

“It’s scary,” said Clyde Prestowitz, president of The Economic Strategy Institute, a Washington, D.C. based think tank. “Consumer confidence is the only thing holding the American and world economy together.”

Gross Domestic Product numbers were also released last week, showing little economic growth, said Josh Bivens, an economist at the Economic Policy Institute in Washington, D.C. The lack of consumer confidence is a “worrying sign” because the GDP numbers show that the economy is driven by consumer purchases and not businesses or exports. He agrees that “the only thing keeping the economy together is consumers’ willingness to buy.”

“A weak labor market, the threat of military action in Iraq, and a prolonged decline in the financial markets have clearly dampened both consumers’ confidence and their expectations for the near future,” said Lynn Franco, Director of The Conference Board’s Consumer Research Center.

The numbers are based on a survey of 5,000 U.S. households. This is the lowest the numbers have been since November of 1993. Evaluations of the current state of the economy and expectations for the future were also lower than numbers released in September.

“I think it’s down because consumers are on a spending spree and heavily in debt. Household balance sheets are not good,” said Prestowitz.

Prestowitz doubts the numbers will have an impact on the upcoming elections but he believes a recession is possible, which would affect the 2004 presidential race. He said that President George W. Bush and Congress need to enact measures to “put more juice in the economy” and that the Federal Reserve should cut interest rates, as they are expected to do when they meet this week.

“It’s hard to attack consumer confidence,” said Bivens, because it’s dependent on the state of the economy. He believes that government should pass short-term spending measures and enact a business-friendly fiscal policy in order to improve both.

The employment outlook is also bleak. Only 15 percent of consumers anticipate more jobs to become available, down from 17.3 percent. Expectations of an increase in income were also lower.

The Labor Department released figures on Friday showing a 5.7 percent unemployment rate, a slight rise from September. “Job losses in the construction, manufacturing, and help supply industries were offset by gains in a number of other industries, among them finance, real estate, and health services,” the report found.

Still, said Givens, “The case for lowering interest rates is definitely stronger now than it was last week.”

He said that while the release of the consumer confidence report won’t necessarily have an effect on the stock market “if consumers stop buying it’s likely to hurt the market.”
The consumer confidence survey is conducted on a monthly basis for The Conference Board by NFO WorldGroup and was begun in 1985.

Despite the lack of consumer confidence, the Dow Jones and NASDAQ were up this week, continuing a four week rally.

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