You can understand why the latest consumer
confidence index plunged like an unopened parachute if you just
recap some of the big news over the past few months.
Most of it was negative.
It wasn't just the events, such as the billions of dollars lost
on stocks, threats of inflation, warnings about recession, massive
layoffs and the zapping of the most extreme high-tech hopes. They
were bad enough.
Adding to the impact, however, were the preceding 10 years of
easy times when little in the business and economic area wasn't
just good but very, very good. That left people psychologically
vulnerable to bad news.
Was the decline in consumer confidence an overreaction?
Maybe, but for now it can't be determined one way or another.
American consumers don't always signal mood changes clearly as
indicators suggest. They aren't automatons. They think, they
reason, they wait and see.
Uncertainty, if that is what they are expressing, is a well
reasoned response to a period of economic flux, and as the economic
signals become clearer so will the mind of the American consumer.
It takes time to digest the significance of, for example, the
news about massive layoffs among large companies and the
realization that despite such things the jobless rate remains at
And if their personally chosen stocks sailed higher than the
averages before plunging, it is only understandable that they
should begin to doubt themselves, lower their expectations and
maybe seek help.
A lot of them have done just that. They didn't simply abandon
stocks altogether during the great plunge in averages. Much of
their remaining money went into mutual funds, a record $309 billion
worth last year.
That was last year, but now The Wall Street Journal reports
there are indications the flow of money into mutual funds is
continuing, suggesting that even after a horrible 2000 they remain
committed to investing.
While the situation still might change, you can hardly read fear
into the latest housing statistics. They show a sudden, spectacular
rise in home purchases, the biggest monthly gain in more than seven
A home, as every buyer and potential buyer is aware, generally
represents the biggest financial commitment of a consumer's life,
the sort of action nobody is inclined to make if they've given up
on the economy.
There is little question that slowdowns hurt, and this slowdown
already has inflicted real pain in some heavy industrial centers
and high-tech areas. A slowdown, however, is no surprise. It was to
American producers made an extreme effort for a decade, longer
than any other period this century, flooding this country and
others with an unprecedented supply of stuff from toys to
automobiles, straining all the devices of marketing and advertising
to do so.
A slowdown from such a rugged pace means an adjustment, but the
plunging consumer confidence index of The Conference Board still
leaves it at the same level as in 1996, when such a level was
viewed as very high.
The consumer has sent a message, but it isn't necessarily about
Perhaps it just indicates a reasonable, defensive economic
position, an intelligent hiatus to see how low the Fed will push
interest rates it chopped it another half point on Wednesday
and if, when and by how much the White House and Congress might cut