WASHINGTON -- More evidence that the economy is still racing along in high gear despite higher interest rates came yesterday when the Conference Board reported that consumer confidence in November soared to its highest level in four years.
The New York-based business research group said its consumer confidence index jumped to 101.3 from 89.1 in October as households surveyed indicated that they were more upbeat about current business conditions and the outlook over the next six months. The index is based on a 1985 level equaling 100.
Analysts reacted cautiously to the report, noting that consumer confidence is a volatile measure that does not necessarily translate into spending on goods and services.
They also suggested that the report reflected a sense of voter satisfaction following the midterm elections that could prove transitory. The index jumped sharply in November 1992, following President Clinton's election, and again in December of that year, before leveling off.
"People had the same kind of sense of satisfaction after Clinton was elected, a feeling that they threw the bums out," said Robert DiClemente, director of bond market research for Salomon Brothers Inc.
Still, the upturn in confidence fit with other reports that so far consumers are not being deterred by the Federal Reserve's policy of tightening credit. It also reinforced the notion that Fed officials will feel compelled to raise rates again to slow the economy and head off higher inflation.
"The current level of confidence signals an expanding economy in the months ahead," said Fabian Linden, executive director of the board's consumer research center. "Fears of an imminent slowing of the economy are unrealistic."
Interest rates are still not high enough to inhibit the behavior of most consumers and businesses, said Neal Soss, cofounder of Soss & Cotton Enterprises. "When the economy wants to grow, you have to work very hard to restrain it, and a 5.5% federal funds rate is not yet providing any evidence of restraint," he said.
Soss said the bond market is debating whether members of the Federal Open Market Committee can wait until their Jan. 31 meeting to raise rates again or if they will act at their Dec. 20 meeting. But, he added, this is simply a question of timing, and there is no debate that rates are headed higher.
DiClemente called a Fed tightening in December "a long shot," but said the economy appears to be closing out the year on a strong note. Analysts at Salomon Brothers estimate the economy grew about 4% in the fourth quarter, above the 3.4% pace estimated by the Commerce Department for the third quarter.
The government is scheduled to issue a revised third-quarter GDP estimate today. A more up-to-date and important reading on the economy is due Friday when the Labor Department issues the November employment report.
Other recent economic reports have continued to be stronger than expected. On Monday realtors reported that sales of existing home last month did not change much despite higher interest rates. In addition, retailers reported strong sales over the long Thanksgiving holiday, which kicks off the traditional end-of-year buying binge by consumers.
Confidence levels were up in all regions of the United States, according to the Conference Board survey. The index for how people felt about current business conditions jumped to 108.3 from 90.9, and the index for expectations over the next six months rose to 96.7 from 87.9.