Confidence Level for Consumers Is Best Since 1990

Consumer confidence in the United States rose dramatically in November to the highest level since 1990, according to a new survey released Tuesday that suggested the national economy is heading into 1995 with a lot more punch than many experts believe.

The report by the Conference Board, a business information group, surprised analysts and rattled inflation-wary investors, who pushed bond values downward and interest rates up.

“Consumer confidence is now at a four-year high,� said Fabian Linden, an official with the Conference Board. The November findings, he said, “strongly suggest that fears of an imminent slowing of the economy are unrealistic.�

The board’s overall index of consumer confidence rose to 101.3, up 12 points from October. On the West Coast, the index rose 10 points to 84.7, reflecting the fact that California’s confidence level, while rising, lags the national average. More dramatic surges occurred in parts of the Midwest, while areas of the South showed little gain.

Consumer surveys interest economists because people tend to base their views on what they see and hear in their own workplaces, homes and neighborhoods. Such views often provide a clue to public spending patterns.

“Based on the more than 25-year history of the survey, the current level of confidence signals an expanding economy in the months ahead,� Linden said.

Nonetheless, a separate survey of business economists Tuesday--based more on cold statistics than personal anecdote--pointed to “dissipating momentum� as the U.S. economy moves into 1995. The National Assn. of Business Economists projected that the country’s ebullient 1994 growth rate of about 3.8% will slip to a more moderate 2.7% pace next year.

Among the culprits: rising inventories--a growing pileup of unsold goods--and further declines in defense spending. On top of that, many economists expect the combined wallop of six interest-rate hikes this year to take away much of the recovery’s zip as 1995 progresses.

On Tuesday, however, signs of strength took the spotlight.

“The economy is looking extremely strong,� Federal Reserve Vice Chairman Alan Blinder told a Jacksonville, Fla., audience. “Unemployment is down to its lowest level in years, and we have achieved all of this without setting off inflation.�

While Blinder held to the Fed tradition of not telegraphing future interest rate hikes, other economists predicted that another such move could be expected in the coming months.

“It’s quite clear that more can be expected,� said Asha Bangalore, an economist with Northern Trust Company in Chicago.

Analysts struggled Tuesday to explain the report of surging consumer confidence, which seemed to depart from other recent consumer gauges. Preliminary November findings by the University of Michigan, for instance, showed a modest drop in the public’s assessment of current conditions. Similarly, a recent private survey of retail sales was flat.

Theories about the Conference Board findings included everything from post-election euphoria to recent gains in jobs and income to an almost willful denial by consumers of the cost of rising interest rates.

“It’s off the map,� said Raymond A. Worseck, chief economist at A.G. Edwards & Sons, a brokerage firm in St. Louis. “While I hope the number is correct, you have to be very cautious about jumping to conclusions.�

The consumer confidence report, based on a monthly survey of 5,000 households, found rising numbers of people who said business conditions are good and jobs are plentiful.

While the numbers underscored an upward shift in public attitudes about the economy, many of the respondents were still cautious.

For example, 25.3% said conditions were good and 17.5% said they were bad. But 57.2% said they were normal. While 20.7% described jobs as plentiful--up from 9.5% a year ago--52.1% opted for the more cautious “not so plentiful,� about the same as last year. About 27.2% said jobs were still hard to get, down from 36% reported 12 months ago.

“Consumers are human--they want to have a nice holiday,� said David B. Bostian Jr., chief economist at the Herzog, Heine, Geduld investment firm in New York. “They’re just taking out the credit card and spending.� Perhaps, he said with a chuckle, they are denying the reality of rising interest rates.

Indeed, Americans have increased their reliance on credit for 22 months in a row, according to Federal Reserve data through September, the most recent month available. Auto loans, bank cards and other types of credit have all reflected steady rises.

As a result, some economists fear that today’s consumers, increasingly willing to rely on debt, are pushing the economy into a danger zone. This is especially true, some maintain, because of the rising interest charges on that debt.

“It’s one of the Achilles’ heels of the recovery,� Bostian said.

Consumer Confidence

From a monthly survey of 5,000 U.S. households.

Index: 1985: 100

November 1994: 101.3

Source: Conference Board