A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.



Consumer confidence remains key

My next guest sees consumer confidence as the key to the economic recovery. Lakshman Achuthan, a MONEYLINE regular and economist for the Economic Cycle Research Institute joins me now.

So Kathleen was saying that these people are buying bonds based on the fact that the economy should recover in the spring. Do you see that or is that optimistic?

LAKSHMAN ACHUTHAN, ECONOMIC CYCLE RESEARCH INSTITUTE: That's somewhat optimistic. The leading indicators of recovery are not so clear that there's a recovery this spring.

HOPKINS: In fact, we've gotten leading economic indicators today. And they were down quite a lot.

ACHUTHAN: Yes, those were down. Those -- that's a reading through the September numbers. The more recent readings have continued to fall. We look at weekly leading economic indicators.

But one thing that Kathleen was pointing out was that it's a very rich, you're getting a high yield in corporate bonds. So the spread between the corporate bond yield and the Treasury bond yield is a good indicator in and of itself. When that widens out, it says that the market, the bond market is telling you, that they're not sure the recovery's imminent. They're a little sketchy on it. And...

HOPKINS: It's the risk.

ACHUTHAN: It's the risk that they're measuring. Right, there's a bit of risk.

And you know, Ford is not a fly by night company. That'll be around. So it's probably a good risk. The key here is confidence. There's a lot of pent-up stimulus. How do you get the consumers to spend that? They have to have confidence going forward.

And one thing that they're fighting against is the layoffs. They're getting these job layoffs all the time. And that is making people take the stimulus that's been introduced into the economy, put it in their pocket or pay down debt, as opposed to spending it. And until that shifts, it'll be difficult to get a good cyclical recovery going.

HOPKINS: But it's interesting, the stock market had a very good day today and had a very good day on Friday. What impact does that have on consumer confidence?

ACHUTHAN: Well, hopefully a positive one. But until it spreads outside of investor confidence to the consumer, and to some other more real economy leading indicators, we can't call a recovery. Remember, back in the second quarter, the stock market did much the same thing. And it was a bit premature.

HOPKINS: Now what about all of the continuing anthrax scares? That affects consumer confidence, doesn't it?

ACHUTHAN: Right. So you're already worried about the job market being a little shaky. And then you have new uncertainty introduced on top. So it's making a bad situation worse. So that -- we need to see that stabilize. We'd love to see some of this uncertainty be taken away as we go forward.

HOPKINS: Lakshman Achuthan, thanks for joining us.

ACHUTHAN: Thank you.