Concerns about prices, income pressure consumer confidence

The Conference Board reported today that the Consumer Confidence Index fell from an upwardly revised 72.0 in February to 63.4 in March, roughly in line with most analysts forecasts.

Lynn Franco, Director of The Conference Board Consumer Research Center said, “The sharp decline in confidence was prompted by a sharp decline in expectations. Consumers’ inflation expectations rose significantly in March and their income expectations soured, a combination that will likely impact spending decisions.



“On the other hand, consumers’ assessment of current conditions improved, indicating that while the short-term future may be uncertain, the economy continues to expand,” he added.

Fears that a decline in consumer confidence might eventually impact consumer spending, which makes up about 70% of GDP, would normally be warranted; however, investors at this point appear to be brushing aside the turmoil in the Middle East that has sent oil prices sharply higher, and the earthquake in Japan that is beginning to affect the supply chain.

Moreover, a one-month drop in confidence must be looked at in the context of the overall trend.

In other words, the subsequent rally in stocks that followed the brief sell-off a couple of weeks back suggests that investors are betting the economic recovery is intact, which is signaling further gains in employment and another round of upbeat earnings.