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Output Confidence
surges in May U.S.
consumer confidence index jumps to 144.4; second-highest
level ever By
Staff Writer M. Corey Goldman
May 30, 2000: 11:26 a.m. ET
My answers:A Which determinants can you find in the article THAT HAVE CHANGED?(1) "consumer confidence gathered steam" indicates an increase in consumer expectations and therefore an increase in CONSUMPTION(2) "despite higher interest rates" indicates a DECREASE IN THE MONEY SUPPLY which causes an increase in interest rates and this would cause a decrease in INVESTMENT.
B Will they increase or decrease AD and/or AS?
The increase in consumption would increase AD (shift it to the right)The decrease in investment would decrease AD (shift it to the left)
C After graphing the changes use the graph to tell me what you think might happen to UE, IN, and EG?
The article is dated May 30, 2000 when our economy was operating at full employmentand there was a fear of inflation. Therfore an increase in consumption and AD will cause even more inflation.
The Fed was trying to prevent more inflation by decreasing the MS and thereby increasing interest rates. This would decrease AD and decrease inflation [see: http://www.harpercollege.edu/mhealy/ecogif/asad/addecfe.gif]
NEW YORK (CNNfn) - U.S. consumer confidence gathered
steam for the first time in four months in May, rising
to a near record despite higher interest rates and
stock market volatility that were widely expected to deter
consumers from prying open their wallets.
The
Conference Board
reported Tuesday that its key gauge of consumer confidence
jumped to 144.4 in May, up from a revised 137.7 in April.
Analysts polled by Briefing.com had expected the index to
rise to 137.0 for the month. The present situation index
rose to 183.1 from 179.8 in April, while the outlook for
conditions six months from now rose to 118.7 from 109.7.
The numbers came as a surprise to analysts and investors who
had expected to see more signs that the Federal Reserve's
recent spate of interest
rate increases,
along with seesawing activity in the stock
market,
was damping investors' confidence and subsequent desire to
spend. Consumer spending accounts for more than two-thirds
of economic output.
"With unemployment at a 30-year low and the short-term
Conference Board forecast projecting favorable labor market
conditions, confidence is expected to remain strong through
the summer," said Lynn Franco, director of the board's
consumer research center. "Volatile financial markets and
interest rate hikes are not expected to have a significant
impact."
What both Franco and other economists immediately pointed to
was the tight U.S. labor
market,
which has created a shortage of skilled workers in almost
every industry and prompted companies to start paying their
workers more in salaries and benefits -- a situation that
can trigger inflation.
Those
conditions have made consumers feel confident about their
present and future prospects, even with the stock market's
wild gyrations and with the Fed raising rates. The fed funds
rate, the target for overnight lending between commercial
banks, currently stands at a nine-year high of 6.5 percent;
the Fed last raised
rates
on May 16th by a half percentage point.
"If sharply higher interest rates, and a plunging Nasdaq
make people more optimistic, we are at a loss to know
what it will take to depress confidence," said Ian
Shepherdson, chief U.S. economist with High Frequency
Economics. "Job losses, perhaps, but there is no sign of
that yet." Year to date, the Dow Jones industrial average
has declined almost 10 percent, while the tech-heavy Nasdaq
has fallen more than 18 percent.
That is why Wall Street will have its eyes trained on May's
employment data, due for release Friday. Analysts polled by
Briefing.com expect that 365,000 new jobs were added to the
economy this month, leaving the jobless rate unchanged at
3.9 percent. Average hourly earnings are expected to have
gained 0.4 percent, the same pace as recorded in April.
Kathleen Camilli, a senior economist with Tucker Anthony,
told CNNfn that she "has shifted to the view that we're
going to see a lot more tightening from the Fed." She now
expects Fed policy makers to raise short-term rates as high
as 7.5 percent before the end of the year. (288KB
WAV)
(288KB
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Confirming
the perception of the white-hot job market, the share of
respondents who saw jobs as plentiful rose to 52.8 percent
in May from 52.4 percent a month ago. The share seeing jobs
as hard to get fell to 11.4 percent from 12.1 percent. Also
in May, 32 percent said they planned to buy a home
appliance, up from 29.7 percent, and 9.6 percent said they
plan to buy a new car, up from 8.3 percent.
And there were signs that the Fed's spate of rate increases
haven't deterred investors from spending, particularly on
real estate. The number of respondents who plan to buy a
home in the next six months rose to 3.6 percent from 3.2
percent.
"There is no realistic sign of economic weakness on the
horizon and wiggles on Wall Street are, evidently, not
causing much anxiety on Main Street," said Sherry Cooper,
chief economist with brokerage BMO Nesbitt Burns. "The
confidence surveys cast doubt on the slowdown view."
The Conference Board, a private business research group
financed by major corporations, compiles the index from a
survey of 5,000 households.
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