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Greenspan's Optimism Stirs Inflation Jitters : Economy: Consumer confidence is at its lowest level since last fall, but the Fed chairman says conditions are ripe for job growth.

May 26, 1993|From Associated Press

Even as consumer confidence was falling, Federal Reserve Chairman Alan Greenspan gave an upbeat assessment of the U.S. economy Tuesday, saying that business conditions are ripe for a major expansion in job growth.

Greenspan predicted an end to the large-scale layoffs that characterized the recession, as the nation's profound corporate downsizing frees up new money.

"The productivity that is being created at this stage is opening up profit margins," Greenspan said in remarks before a group of Dallas business leaders. "It's creating a significant amount of new investment. And what history tells us is that this is the early stage of a major expansion in employment."

The Fed chairman's comments set off inflation sirens in the U.S. Treasury market, sending bond prices tumbling in late trading. By saying the economy was ready to grow fast, Greenspan raised the specter of higher inflation, which hurts the value of bonds.

Greenspan's remarks contrasted with a report from the Conference Board on Tuesday that its widely followed monthly consumer outlook survey tumbled to its lowest level since October, reflecting a weak jobs market and dissatisfaction with the Clinton Administration.

The business research group's consumer confidence index registered 61.5, dropping from 67.6 in April and marking the lowest level since October's 51.6.

The index had reached as high as 78.1 in December after the presidential election.

"Consumer confidence continues at levels that are historically associated with a weak economy," said Fabian Linden, executive director of the Conference Board's consumer research center.

"Jobs continue to be a major concern," he said. "As the nation's unemployment rate continues at a disconcerting 7%, consumers are increasingly worried about job prospects."

According to Greenspan, however, free market competition and other economic forces are driving change that is now bringing the United States out of its economic stagnation, Greenspan told about 1,500 people at a management briefing by Southern Methodist University's Edwin L. Cox School of Business.

"One of the characteristics of this whole process is that as we move toward a telecommunications, computer-based technology . . all ways of doing things get fundamentally altered," he said.

"The processes of producing economic wealth are fundamentally changing," he said.

"What we are seeing is that we are restructuring in a very profound way.

"We were stagnating for a while. And as we are all acutely aware, this was producing a significant amount of job loss where whole groups of people were being laid off."

The Conference Board, though, found that only 13% of survey participants in May said they believe more jobs will be available in the coming months.

That is the lowest level in more than a year.

Fewer people said they expect business conditions to improve in the next six months, and more households said they are afraid their income will decline.

The index is watched closely by economists, businesses and the government for clues to the mood of consumers, whose spending and borrowing are critical components of the economy's overall health.

Richard B. Hoey, economist at Dreyfus Corp., said sharp declines in defense industry employment in the first three months of the year worsened the jobs outlook.

"I think the basic story is that consumer confidence is weak because jobs aren't growing," he said.

Audrey Freedman, an economist and former Conference Board president, attributed the declining consumer sentiment with disappointment over Clinton's first four months in office.

While Clinton made economic policy the centerpiece of his campaign and Administration, he has been stymied both by Congress and a willingness to compromise key issues, she said.

"What (consumers) are experiencing is no change, and they voted for change," she said.

Consumer Confidence

From a monthly survey of 5,000 U.S. households. Index: 1985 = 100

May 1992: 71.2

May 1993: 61.5

Source: The Conference Board

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