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July 31, 2001

Spending Rebound Won't Last

Consumers may have gone back to the stores in the last couple of months, but there is little evidence that spending will be robust in the months to come. First, consumer confidence rose in May and June, boosting consumer spending. But consumer confidence dropped again in July, forecasting a slowdown in spending next month.

Second, in addition to all of the dismal earnings reports issued in July, there have been several new announcements of layoffs and bankruptcies. Last month, the unemployment rate jumped to 4.5% after hovering between 3.9% and 4.2%. Those lower numbers may have given Americans false confidence, but now the unemployment situation is worsening. In fact, it may even be worse than the government tells us. Some independent economists calculate the current unemployment rate at 5.2% or more (see related story: A whopping 777,000 jobs have been cut this year, according to Challenger, Gray, and Christmas.

All this bad news has done a number on consumer confidence. As more Americans lose their jobs and remain unemployed, it is doubtful that consumer spending will be able to prop up the battered economy for much longer.


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