Wall Street Rallies Despite a Lack of Consumer Confidence
Wednesday, November 26, 2008SUZANNE PRATT: Investors gobbled up stocks for the fourth straight day as the major averages posted big gains ahead of the Thanksgiving holiday. The Dow surged 247 points and the NASDAQ jumped 67 or more than 4.5 percent. The rally came despite a slew of weak economic reports out today. Orders for durable goods tumbled more than 6 percent last month and new home sales fell sharply. Meanwhile, personal income rose slightly in October, but as Scott Gurvey reports, consumer spending and sentiment plummeted.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: Pre-holiday shoppers today had to cope with another set of dreadful economic reports, consumer spending marking the biggest decline since the 9/11 attacks, consumer sentiment down to a 28-year low. Business spending on durable goods down twice as much as economists had expected. Economist Kathleen Stephansen says these are reports only a Grinch would enjoy.
KATHLEEN STEPHANSEN, ECONOMIST, CREDIT SUISSE: This theme that the economy hit a brick wall in October seems to be continuing into November and I think that`s the reason why you`ve seen such an aggressive response from policy makers.
GURVEY: The problem with policy responses is that most will require months to take effect. Economist Julia Coronado expects the downturn to continue well into next year.
JULIA CORONADO, SR. ECONOMIST, BARCLAYS CAPITAL: Right now you`ve got a lot of consumers putting off purchases of say cars or other big ticket items, because they can`t get credit, number one and number two, they might not even want to do that kind of spending right now given the uncertainty.
GURVEY: One rare encouraging sign is being seen in the mortgage market where Coronado notes recent Federal Reserve actions have rapidly lowered interest rates.
CORONADO: The Federal Reserve at least has moved into a very aggressive phase. They understand this is a psychology game and so they`re just -- they`re pulling out all stops and unleashing as much as they can into the markets to really change that psychology and send the message that they`re going to do whatever it takes to get these markets moving again. And I think they had a big impact on markets this week and we are likely to see more of that from them.
GURVEY: There have been some critics complaining that there will be a price to pay for all the stimulus in place or yet to come. But Stephansen says these fears are premature.
STEPHANSEN: A lot of people are alluding to, isn`t this inflationary? It would be highly inflationary if economic growth is converging back to potential and absorbing all the excess capacity that has emerged. But at the moment that`s not on the radar screen. We still are in the phase where the patient is still very, very sick.
GURVEY: Most economists predict another shock to the national psyche next week when the employment report for November is expected to show the largest decline in many years. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
