Baltimore Sun’s BEST party in 2 weeks

Anxiety over taxes shakes confidence about economy


Confidence in the economy and in the Clinton administration's handling of it took another tumble in May, suggesting that consumer and business spending is likely to remain so-so and that the president's political troubles are still growing.

The latest surveys of consumers and businesses show that the resurgence of hope that occurred between President Clinton's election and his economic policy speech before Congress in mid-February has been beaten down by anxieties over higher taxes.

Indeed, approval of the president's economic policies has plunged in the past month, while disapproval has grown drastically.

"This reflects worries about Washington," said David Kelly, an economist at the Boston Company Economic Advisers. "We've still got a half-paced recovery. That hasn't really changed."

The University of Michigan index of consumer expectations -- which is based on a monthly survey of households around the country and figures in the government's economic forecasting gauge -- dropped sharply in May, to 71.9, from 76.4 in April. The May reading is the lowest since last October.

The president's approval rating in the index among consumers fell to 7 percent in May, from 15 percent in April, only a shade higher than President Bush's rock-bottom 5 percent rating last August.

Despite White House efforts to reach out to executives, the Cahners Business Confidence index, which measures business expectations about the economy, has dropped to its pre-election level after rising sharply during the fall and winter.

The U-turn in confidence is the third since the recession ended in March 1991, but the mood of consumers and businesses is only one ingredient in buying decisions. Pay and profits, interest rates and inflation also count for a lot.

The latest decline in confidence "won't abort the recovery; it's just a characteristic of this weak recovery," said Roger Brinner, chief economist at DRI/McGraw Hill.

The overall Michigan consumer sentiment index -- a summary measure that reflects consumers' feelings about the present as well as the future -- fell to 81.9 in May, from 85.6 in April, a significant drop in a measure that is not particularly volatile.

The main reason for the decline: Consumers' expectations about future business conditions took a dive.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad