Confidence rises to highest point since April '91 Many optimistic about job growth

December 30, 1992|By New York Times News Service

The mood of consumers, which brightened considerably after the election in November, was even more upbeat in December.

The widely followed Conference Board index of consumer confidence jumped to 78.3 points, its highest level since April 1991, soon after the United States won the Persian Gulf war.

Optimism about job growth is lifting spirits from New England to the West Coast.

One example: Sales of existing homes -- the kind that represent most of the buying and selling in the residential real estate market -- leaped last month to the fastest pace since the mid-1980s, an annual rate of nearly 3.9 million single-family houses and apartments. Home sales were up 3.7 percent in the still-depressed Northeast and 3.8 percent in the West.

The magnitude of the December spurt in confidence surprised almost everyone, including Fabian Linden, who is in charge of the Conference Board's 5,000-household survey and has watched past November surges in the wake of presidential elections fade after a month or two.

"It would have been natural to expect some erosion in December," said Chris Probyn, an economic forecaster at Data Resources/McGraw Hill in Lexington, Mass. "What happened is that expectations about the future just kept heading higher."

"People feel the Democrats are going to provide the answer for the economy," he added. "Confidence should stabilize now, but rTC it will be vulnerable if policy gridlock develops in Washington."

Indeed, consumers in the survey were only mildly more upbeat than two months ago about current economic conditions, especially in the job market.

By contrast, consumers are a lot more hopeful that conditions will improve in the next six months or so. Expectations, as measured by one component of the Conference Board index, have jumped 34 points, to more than 100, since October.

Despite bad news on military and computer industry layoffs, 21.7 percent of households, compared with 13.5 percent in October, thought more jobs would be available six months hence, outnumbering those who thought fewer jobs would be available. Meanwhile, job-market pessimists shrank from one-quarter to one-sixth of the respondents.

The better mood suggests that consumers will keep spending, though hardly at the rapid pace of the last six months. Based on October and November government data and anecdotal reports from retailers, spending probably grew at an annual rate, after inflation, of more than 4.5 percent in the fourth quarter. It rose at a rate of 3.7 percent in the summer.

"You'll still see decent spending gains at a 2 to 3 percent annual rate," said Deborah Johnson, an economist at C.J. Lawrence & Co.

The pace of spending is likely to settle down, simply because it has lately outstripped the growth of both jobs and wages and because Americans' savings rate is already low.

"You can only grow consumption faster than income for a short period of time," said Mr. Probyn of DRI/McGraw Hill. "If the malaise in the job market continues, confidence will be vulnerable."

Although unemployment has declined to 7.2 percent, job growth has been extraordinarily weak by the standard of past economic recoveries. Like other forecasters, DRI/McGraw Hill does not expect the economy to grow fast enough to whittle away quickly at the jobless rate.

"We're projecting growth, on average, of around 2.7 percent a year, and that's consistent with a very, very gradual downtrend in the unemployment rate," he said.

Retailers track confidence surveys closely for clues about spending trends. The Conference Board measure, which correctly signaled a temporary slump in spending a year ago, has not tracked this year's stop-and-go pattern in shopping very well.

One reason for thinking that the survey is picking up real %J improvement, however, is that the Conference Board report is consistent with the latest reading, for December, from the generally less volatile University of Michigan survey.

The Michigan survey registered a substantial 5.7-point gain in December, after an advance of 12 points in November. More important, the Michigan index, which reached 91 points, is back within the range it registered during most of the long, strong 1980s expansion.

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