Consumer confidence dropped for the second straight month in March, as consumers continued to endure the burdens of high fuel prices, rising interest rates and volatility in the stock market.
But even as consumers' expectations about future job availability, income growth and overall economic activity started to wane, they still provided an upbeat assessment of the current economy, the
, a business research group, reported Tuesday. The board's
consumer confidence index
slipped to 136.7 in March, compared with a revised 140.8 in February.
The drop was bigger than Wall Street's expectations as economists had been expecting the index to fall to 139.9 in March, according to economists polled by
The report indicates that consumer confidence, which hit an all-time high in January, could be faltering as consumers start to brace themselves for the slower economic growth that the
is eager to achieve.
Lower levels of confidence could mean that consumers would curtail some of the heavy retail spending that has been a factor in the record U.S. economic expansion. But most economists are not yet convinced that spending will slow meaningfully, since confidence still remains at historically high levels, based on the Conference Board's survey of 5,000 households.
"Will the easing in confidence lead to a slowdown in spending? Right now that is not particularly clear. The world is still wonderful. It is just that the rose-colored glasses have a touch of fog on them," said Joel Naroff of
Narroff Economic Advisors
in Holland, Pa.
While economists may be encouraged by what looks like a trend toward lower consumer confidence, other areas of the economy continue to grow extremely fast. For example, sales of existing homes surged in February by 6.7% from February 1999, an indication that higher interest rates have yet to change Americans' attitudes toward some types of spending.
"Analysts are waiting to see if a further erosion in confidence triggers a slowdown in consumer spending," said Lynn Franco, director of the Conference Board's consumer research center. "As for now, a moderate cutback in consumer spending is unlikely to stifle still-strong economic growth."
Fed officials have said that the sizzling pace of consumer spending is a major factor in the country's imbalance between demand for goods and domestic supply. The nation's low unemployment rate, rising wages, and wealth created by rising stock markets will eventually worsen that imbalance, which could spur inflation as more dollars chase fewer goods.
To quell the growth in demand, the Fed has raised interest rates five times, by a total of 1.25 percentage points, since last June. The fed funds rate -- the interest that banks charge each other for overnight loans -- now stands at 6%.
With its most recent rate increase on March 21, the Fed issued a statement which said it remains concerned that "increases in demand will continue to exceed the growth in potential supply, which could foster inflationary imbalances that would undermine the economy's record expansion."
Strong demand has also been leading Americans to import a record amount of goods from abroad, illustrated by data from the
last week that the country imported a record $28 billion more goods than it exported in January.
The U.S.' heavy reliance on foreign goods is seen as damaging for the economy at large because it in turn makes the nation dependent on the inflows of foreign capital through investments. As U.S. markets continue to chalk up heavy returns, foreigners have been eager investors in U.S. stocks and bonds, but any temperance of foreign enthusiasm could spell trouble in the form of a weaker dollar and inflation.