Jobs Down, Confidence Up
Subject Consumer Confidence
Topic Employment, Unemployment, and Inflation
Key Words Employment, Unemployment, Exports, Consumer Confidence
News Story

In spite of daily notices of new layoffs, evidence of a slowing economy and plunging stock market prices, consumer confidence, as measured by the Conference Board, surged in March. The index, which had declined for five months, jumped to a value of 117 from last month's 109.2. In the previous few months consumers were concerned that a recession "was just around the corner." This month's survey indicates that consumers are a lot more optimistic about the future. The stock market reacted enthusiastically to the news, jumping 2.7 percent.

The consumer confidence index, a monthly survey of 5,000 households, is thought to be an important indicator of consumer spending. Since consumer spending accounts for two-thirds of gross domestic product (GDP), consumer cut backs could push the economy into recession. It was feared that stock market decreases earlier in the month would cause consumers to be less optimistic. Lynn Franco, director of the Conference Board's Consumer Research Center, believes that employment, rather than movements in the stock market is the determinant of consumer confidence levels. Consumer optimism increased because the unemployment rate is at 4.2 percent, a 30 year low.

There are continued troubling signs for the economy. The Commerce Department reported a 0.2 percent drop in consumer durable good orders for the month. Shipments of business capital goods fell by 2.6 percent last month following a 1.7 percent decline in January. Decreases in capital spending, coupled with cuts in production, have reduced first quarter economic growth to about 1 percent. Increased consumer and government spending are the primary positive influences. Some analysts believe that economic growth will begin rising this spring.

(Updated May 1, 2001)

1. The article notes that consumer spending is largely responsible for continued economic growth. What percent of Gross Domestic Product (GDP) is due to consumer spending?
2. Some analysts feared that decreases in the stock market might lead to cuts in spending by consumers. According to the article, what is the primary determinant of consumer confidence?
3. . Why do you think the stock market would react enthusiastically to the announcement about the increase in the consumer confidence index?
Source John M. Berry and Caroline E. Mayer, "Consuemr Confidence Up Sharply," The Washington Post, March 28, 2001.

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