TIME.com: What's it all mean?
Bernard Baumohl: After five months of falling consumer confidence numbers, the survey has rebounded, not just slightly but dramatically. The jump mostly comes from the part of the survey that's been weakest in the recent slide — consumers' outlook for the economic situation over the next six months. They're more hopeful that the economy will rebound by the end of the year, and that we'll avoid a recession.
The good news, of course, is that because consumer spending accounts for two thirds of U.S. economic activity, strong consumer confidence is exactly what we need to keep that recession from happening.
Did this survey cover last week, when the markets took that dive?
BB: It doesn't look like it. But it does seem that in general, the recent troubles are factored in — that portion of the survey only inched up a tiny bit. What's significant is the long-term outlook — all along we've been looking for that to reverse itself, because that's what's affecting most of Americans' spending decisions — and that's where the good news is.
So where are these people getting all this optimism?
BB: Consumer sentiment is tied first and foremost to their jobs and job security. I think the main influence on this report was the unemployment numbers for February, which came out in the first part of March. With unemployment at 4.2 percent, I think people realize that whatever happens in the markets, the most important factor in their lives is going to be whether they're working or not, and the fact that unemployment is still holding — after eight months of the economy sliding — has to be encouraging.
There's a portion of the report that deals with this, and 12.2 percent of those surveyed expected there to be more jobs available in the future, rather than less, up from 10.8 percent in February. And 20 percent expected fewer jobs to be available, down from 26 percent in February. I think that 4.2 number really put all the layoff headlines in perspective.
Another factor is the Fed. At the time this survey was probably taken, the Fed had already cut interest rates twice, and it was considered a given that Greenspan was going to cut again in March, at least by a half-point and maybe more. People have a lot of confidence that if the Fed is actively cutting interest rates, the cost of borrowing is going to be low and that's going to turn the economy around sooner or later.
And the tax cut may also have something to do with it. This was the time when Bush's $1.6 trillion cut had been pushed through the House, and people realized that even if the Senate was going to be a much tougher fight, Congress did have a sense of urgency about tax relief, and that people were definitely going to get some kind of significant tax cut.
People are definitely concerned about how things are right now. But it looks like they figure with unemployment holding steady, Greenspan cutting interest rates faster than he ever has before, and a tax cut on the way, the stock market — while it's definitely scary now — will turn around eventually.
The markets went up on the news. Is this sort of thing self-fulfilling?
BB: That's certainly the idea.