Most Americans were hurt minimally-if at all-by last year's global financial virus. By contrast, though, policy makers' response to the crisis-easier money around the world-has affected our fortunes much more broadly and profoundly. Indeed, no sooner had the tempest ended then American consumers regained record levels of confidence in their own current economic situation, according to the Conference Board.
But consumers' hopes for the future still remain somewhat guarded. Despite a sharp rebound since last autumn's lows, expectations need to rally even more just to match their 1997-98 highs, let alone surpass them (see chart). The stock market has reflected the changes in consumer attitudes. So, too, does The American Demographics Consumer SentiMeter Index, which tracks the relative strength in the stock market of companies whose businesses are sensitive to swings in consumer confidence, and seems to presage important shifts in consumer sentiment.
As the business of the financial markets has become an increasingly mainstream topic, a rising number of Americans are taking notice of the Federal Reserve's monetary policy initiatives. Back in May, the Fed warned of a change: Interest rates were more likely to be going up than down. Now that the tone of the global economy has improved measurably, the Fed will likely reverse some of the "emergency room medicine" it administered last autumn, in the form of three minor cuts inshort-term interest rates. While these moves are largely symbolic-and the first rate hike may well have occurred at press time-the very notion that the Fed is acting to restrict growth through costlier money is made even more profound by broad coverage of the event.
Luckily, fears of rising short-term interest rates don't seem to have much of a negative effect upon the spending plans of U.S. consumers. As the chart indicates, expectations moved higher throughout 1996 and 1997, while the Fed maintained a fairly constant bias toward higher rates. Even when rates actually rose, in March 1997, consumer expectations were being driven more by the robust environment than by fears that higher rates would soon cause activity to falter.
One way consumers display their confidence is to leave work for a vacation with the family. Projections are for this year's summer vacation travel to easily surpass 1998's record volume, according to a national survey by the Travel Industry Association of America. While some skeptics doubt the sustainability of these trends, based on historical precedent, the ever-upward growth may result more from strong underlying demographics than from cyclical swings.
Two of the fastest growing segments of the travel and leisure industry-resort timesharing and recreational vehicles-have something in common: The vast majority of RV and timeshare owners are over 40 years old, according to separate studies conducted by the University of Michigan and the American Resort Development Association. Each is a variation on a single theme: Today's mature adults are better situated financially and more able to travel, but they still appreciate the comforts of a home away from home.
What's more, it should be no surprise that the over-35 boomer set is the fastest growing sector of the American population. In fact, according to the U.S. Census Bureau, the increase in the size of this group accounts for virtually all (92 percent) of the growth in the U.S. population over the past 20 years. Since 1980, the over-35 crowd's numbers have risen by almost 50 percent, to 140 million, and should increase by another 40 million by 2025.