Business sales and earnings are slumping. US manufacturers are losing sales overseas. Economists worry about a global recession. And six Federal Reserve interest rate cuts since January have yet to kick in.
So why are consumers in such a good mood? New York's Conference Board just reported that its monthly index of consumer confidence rose in June to the highest level this year. During the first six months of 2001, a record number of Americans bought homes. Incomes are increasing and inflation is staying tame.
Taxpayers will soon be getting rebates of up to US$600 for married couples under the tax cuts initiated by President George W. Bush.
``Consumers are nowhere as pessimistic as businesses are,'' said Cynthia Latta, senior economist at Standard & Poor's DRI. ``Companies have laid people off. But there are still `Help Wanted' signs out there.''
The same strong dollar that vexes US exporters has made many imported goods cheaper in the US. Excess inventories ranging from cell phones to computers are producing some great bargains. Phone service and airline fare deals abound. Even gasoline prices are falling.
Parallel universes?
``There's a huge dichotomy between what's happening on the consumer side and what's happening on the business side,'' said Ken Mayland, president of ClearView Economics, a Cleveland-based consulting firm.
While consumer spending is still growing, businesses are hurting, caught in a slowdown that is searching for a bottom, Mayland said. Either the business outlook has to brighten or the consumer outlook darken.
President Bush, who emphasized the slowdown earlier this year when seeking support for his tax cut, has joined the ranks of optimists now that refund checks are almost in the mail. The tax cut will provide second wind for the whole economy, he told a Republican dinner several days ago.
But despite the rise in the consumer confidence index and tax refund checks, gloomier times could face consumers as well as businesses, said Mark Zandi, chief economist at Economy.com, a consulting firm in Pennsylvania.
``So far, consumers haven't felt the full brunt of what's happened, at least in the way businesses have. Businesses have cushioned the blow for them so far. Of course, that can't last forever,'' Zandi said.
Because of low inflation and competition from imports, companies thus far have had a hard time raising prices. Also, Zandi said, ``Businesses have been reluctant to lay off employees that they worked hard to hire a year ago when markets were tight.'' But the stream of corporate spending cuts, plant closings and layoffs is increasing.
If consumer sentiment turns south, it could dim any prospects for an imminent rebound.
When the Federal Reserve cut a key interest rate for the sixth time this year, it cited risks of ``economic weakness in the foreseeable future,'' leaving the door open to additional cuts through the summer.
The Fed has now reduced the bellwether federal funds rates -- the rate for overnight loans between banks -- to 3.75 percent from 6.5 percent at the start of the year. But so far, this aggressive rate cutting has done little to revive the economy.
Many economists suggest a lag time of six months to nine months before Fed rate changes are felt. But some Fed watchers are dubious.
Despite the Fed's slashing of short-term rates, longer term rates that affect consumers -- such as home mortgages -- are inching up.
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