Consumer Confidence Surge May Help Lift Economy

Essay by PaperNerd ContributorUniversity, Master's April 2001

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SUMMARY The consumer confidence index surged to 117 in March according to data just released by the Conference Board. The New York based research group's consumer confidence index is closely watched by the Federal Reserve to help determine the health of the economy and make future policy.

The reading of 117 was up from a figure of 109.2 in February. Analysts polled by had been expecting the index to fall to 105 for the month. The surprise uptick follows 5 months of accelerating declines.

Wall Street has been concerned lately that weakening consumer confidence would lead to a further drop in spending therefore hindering any recovery. Nearly 2/3 of the economy is supported by consumer spending. After the report was released investors quickly snapped up beaten down stocks. The Dow Jones Industrial Average finished the day up 260 points and the Nasdaq rose nearly 54.

In a separate report the Commerce Department said that orders for automobiles, appliances, and other durable items that are expected to last at least 3 years, fell 0.2%

last month to a seasonally adjusted $199.2 billion. Economists had been expecting an increase of 0.5% according to survey data from

The decline was primarily fueled by a 2.6% drop in transportation orders, which includes planes and cars. If transportation goods are excluded durable goods orders rose 0.5%.

ANALYSIS Finally there is a positive economic report after months of falling consumer confidence, disappointing earnings releases, and future profit warnings. The unexpected surge in confidence bucks the trend of the preceding 5 months and shows that consumers have not been deterred by the recent downturn in economic activity.

A positive outlook by consumers generally translates into healthy future spending. Since consumer spending accounts for the largest segment of the economy, strong numbers will be needed to...