Report: Economists Positive, Consumers Wary

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March 27, 2013 by   Comments Off on Report: Economists Positive, Consumers Wary

Consumers’ confidence has wobbled in March — but economists’ confidence is rising quickly.

USA Today reported that even as the Conference Board reported Tuesday (March 27) that budget fights in Washington dragged down its consumer confidence index for March, economists are quietly raising forecasts for first-quarter economic growth to as much as a 3% annual clip.

That’s well above the 1.8% median in a USA Today survey of economists last month. Economists’ improving outlooks also come despite the increases in middle-class payroll taxes and top-bracket income-tax rates on Jan. 1 and the beginning of sharp federal spending cuts on March 1.

The conflict is about watching what people do, not what they say.

Forecasts have been raised both because consumers have spent more than expected and because business executives who had reported being rattled by the uncertainty from Washington have raised investment anyway.

The latest evidence was the 5.7% gain in durable-goods orders for February announced Tuesday, said Michael Hanson, an economist at Bank of America Merrill Lynch. Faster jobs growth has also helped, said UBS economist Drew Matus.

“Jobs trump Washington folly,” Matus said. “The primary driver is that people aren’t worried about being laid off any more.”

The latest forecasters to change their first-quarter outlooks include:

•  Bank of America Merrill Lynch, which says the economy is growing at a 3% annual clip this quarter, up from a 1% forecast at the end of the year. The bank says richer consumers, buoyed by rising stocks and home prices, are leading the way.

•  Barclays, which said Tuesday that the durable goods report put first-quarter growth on a 2.6% annual pace, up from 1.5% in December.

• JPMorgan Chase raised its forecast to 2.7% from 2.3% Tuesday, citing more inventory growth.

• IHS Global Insight, which is up to 2.9% projected growth from 1.0% in mid-January.

The government estimates the economy grew only 0.1% in the fourth quarter, but a new estimate due Thursday is expected to be as high as 0.7%.

The Conference Board said its consumer confidence index fell 8.3 points to 59.7 this month, on a scale in which 100 reflects the level of confidence in 1985. But the index rose 9.6 points last month, leaving confidence about the same as two months ago.

Consumers are wavering between worrying about Washington and feeling better about their own finances amid recovering housing and job markets.

An example of the latter is Tuesday’s Standard & Poor’s/Case-Shiller Index report, showing January home prices staged their biggest 12-month gain since 2006, said Conference Board economist Ken Goldstein.

Consumers who have been replacing worn-out cars as that industry recovers from the recession need furniture and appliances too, he said.

“I’m not sure they’ve really made up their mind,” Goldstein said.

“If it was just about the economy, and about economic indicators, we would not be seeing the zig-zag in consumer confidence. My guess is that consumers will decide that they’ve waited so long to buy appliances and furniture that they will decide it’s time.”

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