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Economists See Glass Half-Full, Consumers, Half-Empty

July 1, 2002Written by Guest contributor

Of 55 economists polled by The Wall Street Journal, most say the economy will continue to grow throughout the year and won't make a return trip into recession despite two separate reports that consumers are saving more, spending less and becoming more pessimistic about prospects for economic growth. Forecasters' optimism is rooted in the booming housing market, Federal spending related to the war on terrorism, trim inventories and resilient consumer spending.

The University of Michigan consumer-sentiment index for the full month of June was 92.4, up slightly from the midmonth reading of 90.8 but down from May's 96.9. For the first time since the downturn began, consumers indicated they believed the slowdown would be long lasting. The percentage of consumers surveyed who expected an economic reversal in the next five years nearly matched the percentage of consumers who expected uninterrupted growth. The forward-looking, consumer expectations index dropped to 87.9 in June from 92.7 in May. The survey was completed just as the WorldCom Inc. accounting scandal was disclosed.

A second report Friday also showed consumers are pulling back. The Commerce Department reported that consumer spending decreased 0.1 percent in May, the first decline since November, even as income rose 0.3 percent. Consumers cut spending on durable goods -- items intended to last three years or more -- by 2.4 percent in May, led by a decline in spending on motor vehicles and automobile parts. Spending on services and on nondurable goods, such as food and clothes, dropped 0.7 percent.

Moderator Comment: Has bad news affected individual consumers to the point where the larger economy may feel the impact?

People can be extremely lemming-like in their behavior. Charles MacKay would tell us to never forget the great tulip debacle of the 17^th century. We need some good news, quick. [George Anderson - Moderator]

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