Sounding the Alarm

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Recent events in Asia, Russia, and Latin America are threatening to undermine the health of the global economy. Still, up until now, the United States has been steaming ahead, unfazed by the growing turmoil around the world. Once upon a time the U.S. might have remained immune to the woes plaguing foreign economies. But advances in communications and transportation technology, coupled with political upheaval in key geographic areas in the past decade, have ushered in a more interdependent global picture.

Today, many U.S. companies depend on exports and sales by their foreign subsidiaries to boost growth and compete on a global scale. So when foreign economies and currencies falter, these companies' bottom lines take a direct hit, compromising stock prices and testing the nerves of consumers, record numbers of whom are now invested in the stock market. Such jitters tend to cause these Main Street stock watchers to scale back on discretionary expenditures as they watch a portion of their new-found paper wealth go up in smoke.

In fact, U.S. consumers-whose purchasing power is responsible for roughly two-thirds of the gross domestic product-play a central role in the vicissitudes of the American economy. In the '90s, low interest rates, meager inflation, and a healthy labor market combined to push consumer confidence to almost unprecedented levels. That is, until June of this year.

Recent data from the Conference Board shows the strain of international tumult on the U.S. stock market. For the first time since 1994, consumer confidence, as polled in early September, dropped three months in a row. Hardest hit are consumers' expectations of future activity, while their "present situation" is just beginning to reflect a slight drop (see Consumer SentiMeter chart, below).

Marketers of discretionary products and services that consumers buy during periods of rising confidence have seen their stock prices come under increasing pressure, even when compared with a soft environment for equities in general. Investors, anticipating a confidence tailspin, have bid these stocks much lower than stocks of companies selling staples. During the past year, the stocks indicated below have fallen an average of 5 percent, as compared to a 10 percent rise for the Standard & Poor's 500, and a 1 percent gain for the Dow Jones Industrial Average.

Gauging consumer confidence by tracking stock performance involves selecting companies that are sensitive to employment trends and discretionary consumption. The performance of the companies below, compared with the overall market, reflects both the major trend of consumers' present situations, as well as the more volatile component of shifting expectations.

Tiny Bubbles Diet-soda drinkers are a feisty lot. Slip a rival brand into their glass and they may just spit in your face. What makes them so loyal to their favorite fizz? For its new Customer Loyalty Index, New York City-based Brand Keys interviewed 400 diet-beverage drinkers nationwide to determine the attitudinal and behavioral factors that influence purchases within the diet-soda category. Out of several dozen product attributes, Brand Keys identified four key drivers and scored them on an index of 100. The survey participants-100 per brand-were then asked to rate their drink of choice against these top attributes. The extent to which each brand met or exceeded consumer expectations of the ideal diet soda are shown in the accompanying chart. The closer a brand comes to the ideal, says Brand Keys, the more likely the consumer is to be loyal. Drink up the results.

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