Earlier this year, in his semi-annual monetary policy report to Congress, Federal Reserve Chairman Alan Greenspan devoted considerable time to a discussion of business and consumer confidence.
Businesses, he said, were reacting to the changing environment and "increased uncertainty" with a "reduced willingness" to invest. Consumers, he warned, when they become "less secure in their jobs and finances, retrench as well." For Greenspan the policy maker, abrupt changes in confidence pose a problem, not so much in and of themselves but because they can't be predicted.
"This unpredictable rending of confidence is one reason that recessions are so difficult to forecast," Greenspan said on Feb. 13, 2001. "They may not be changes in degree from a period of economic expansion, but a different process engendered by fear.
PHOTO: NY TIMES
Our economic models have never been particularly successful in capturing a process driven in large part by nonrational behavior." Fast forward eight months, and rational or not, consumer confidence is taking a dive. The Conference Board's consumer confidence index slid 11.5 points in October to 85.5, the lowest level since February 1994, when sentiment was on the mend following the 1990-1991 recession.
Both components of confidence plummeted this month, with the present situation index down 18 points to 125.4 and the expectations index down more than 7 points to 70.8. The latter index was this low in February, and rebounded through August before taking another dive in September, apparently unrelated to the Sept. 11 terrorist attacks.
Unlike the University of Michigan consumer sentiment survey, which showed a slight uptick in October, the Conference Board survey is heavily weighted toward labor market conditions. (The Michigan survey emphasizes financial and business conditions.) Two of the five questions in the monthly survey are directly related to employment conditions (current and future). A third question asks about expectations about family income, which for most families is tied to their job.
Clearly, consumers are feeling glum in response to the "thousands of layoffs that have taken place, and those still to come," arguing against "a rebound in confidence anytime soon," the Conference Board said.
None of the other measures of confidence was as bleak as the Conference Board index.
"Take your pick: you have three different measures telling different stories," said Henry Willmore, senior US economist at Barclays Capital Group. "The Conference Board was down a lot, Michigan was up slightly and ABC News Money Magazine was unchanged." What's more, "confidence doesn't tell us anything we don't already know," Willmore said. "Confidence is a reflection of what's going on in the job market and stock market. Once you account for those two factors, consumer confidence has little independent causality on spending." Whether confidence rose, fell or stayed the same in October, the level is low. How then to explain the ebullience of investors? A Gallup poll last week found that investor optimism soared in October, more than making up for the September decline.
The index, which stood at 86 in August, fell to 63 in September and jumped to 130 in October, the highest since January, according to the Oct. 25 survey by the Gallup Organization.
The index has three dimensions (presumably the twilight zone is not one of them): personal, economic and governmental. All three components registered quantum leaps this month.
The president's approval rating is at an all-time high. So why is consumer confidence, as measured by the Conference Board and University of Michigan, at a seven- or eight-year low? "Investors are not a cross-section of households," said Richard Curtin, director of the University of Michigan's survey of consumers. "They tend to be upper income and older." When asked about investing, that segment of the Michigan survey said now is a good time to invest, Curtin said. "Ask that segment about the economy, and they say the economy is going to worsen. Those are not inconsistent propositions. They see opportunities to make investments even though the near-term outlook is bad." Maybe that explains the double-digit gains in the stock market from the Sept. 21 post-terrorist-attack lows in the face of some God-awful news on the economy and corporate profits. With more than three-quarters of the Standard & Poor's 500 companies reporting so far, third-quarter profits were down 19.3 percent, according to Thomson Financial/First Call.
While stocks seem to have sobered up to reality yesterday and today, Curtin's explanation of the divergence between the economic and investment outlook makes sense: the time horizon is different.
A problem arises when the negative near-term economic outlook doesn't evolve into something that supports the positive long-term investment outlook.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique