Transcripts

Hurricane Katrina Shakes Consumer Confidence But Not Wall Street

SUSIE GHARIB: Investors on Wall Street were upbeat about stocks today, even though American consumers are downbeat about the economy. The Dow surged 83 points and the NASDAQ rose 14. The major averages remained high even after the release of a report from the University of Michigan showing that consumer sentiment plunged in September, because of concerns about the economic impact of hurricane Katrina. Scott Gurvey has details.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: In the wake of hurricane Katrina, consumer confidence has plunged to a level lower than the reading following the 9/11 attack. University of Michigan`s confidence index dropped sharply to 76.9 for the first part of September, from 89.1 in August, according to sources who saw the subscription only report. In addition, expectations about the future, as measured by the survey, fell to 63.6 from 76.9. That`s a 13-year low. Analysts say hurricane Katrina has given consumers good reason to be pessimistic, with the estimated costs of rebuilding rising even as the flood waters recede. Consumers are already feeling the pinch of higher prices at the gas pumps and preparing to change their budgets in anticipation of higher prices for energy during the winter heating season.

JOHN LONSKI, CHIEF ECONOMIST, MOODY`S INVESTORS SERVICE: September`s plunge by consumer sentiment doesn`t promise that a precipitous decline by consumer spending impends. What it does do is warn us that unless energy prices drop significantly, we could be facing a sharply slower rate of growth for consumer spending, and with that the possibility of a stalled economy.

GURVEY: The Michigan survey also reported a sharp increase in short- term inflation expectations. The Federal Reserve tends to look more closely at long-term expectations for inflation, which rose by a smaller amount in the report. Still, the Fed will have to consider today`s report when it meets to review interest rates on Tuesday.

RICHARD RIPPE, CHIEF ECONOMIST, PRUDENTIAL EQUITY GROUP: I think right now it is a very close call as to whether the Fed would pause or go forward with its regular 25 basis points hikes. And I doubt that the consumer sentiment numbers will prove decisive in that decision.

GURVEY: The University of Michigan says steep and widespread declines in confidence have often triggered recessions. But analysts are quick to point out the current situation is not typical and say the current decline could indicate a short-term shock from which the economy can recover. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.