Lex: US economy

news.ft.com Lex News by email Published: Feb 25 2003 21:00 | Last Updated: Feb 25 2003 21:00

The Conference Board survey of consumer confidence was much worse than recent macroeconomic data, market movements and, indeed, the Michigan confidence survey would have suggested. The 15 per cent drop, to a level associated with past recessions, was truly awful. The prospect of war in Iraq, and terrorist threats at home, clearly have not helped the consumer mood. Yet if war was the only reason for declining confidence, this would presumably disproportionately affect the expectations component of the survey, when the current conditions index fell almost as much. Nor can the dismal assessment of labour market conditions sensibly be pinned on Saddam Hussein.

High energy costs sap consumer spending power, but the high oil price is the result of Venezuela's troubles as well as Iraq. A jobless recovery, high household debt, a forecast improvement in business spending that has not materialised, and even worse economic conditions outside the US all suggest caution. February's Conference Board reading might just be a blip. But if sustained, and reflected in the economic data, forecasts will have to be revisited and the Federal Reserve, which is hoping to wait and judge the underlying strength of the recovery once war risk recedes, will be forced to act. With bonds so expensive, stocks look a better bet. But the assumption that all will be well once the geopolitical picture clears remains a very dangerous one.