Before I dive into today's economic news, here's a couple more quotes from Fed Chairman Alan Greenspan, gleaned from yesterday's testimony before the Senate Banking Committee:

"The most probable outcome is coming out of this soft patch into moderate growth with low inflation."

"If we envisage that inflationary pressures are significantly subdued, it would not be inconsistent to move rates lower, as we did on January 31."

I'm glad the Chairman cleared things up on this point. Undoubtedly these words made a major contribution to turning the markets around. But, as I said yesterday, the status of the economy is still fundamentally the same as it was preceding Greenspan's testimony. So, there was really no fundamental reason for the panic selling on Tuesday.

Last evening, ABC News and Money Magazine released the results of their latest weekly survey of consumer confidence. (The full text of the report can be found at keyword: ABC)

Respondents surveyed during the month ending February 18 were slightly less pessimistic than those surveyed during the month ending February 11. This week's Consumer Comfort Index value was one point less negative (-17) than last week's index reading of -18.

The Consumer Comfort Index is based on responses to questions about the status of the national economy, respondents' perceptions of their personal financial situation, and attitudes about making new purchases. The positive and negative responses to the three questions are added together and divided by three.

For the latest survey, 68% of the respondents felt negatively about the national economy, 64% were negative about buying stuff, and 43% were negative about their personal finances. Calculating the Consumer Comfort Index we obtain: (32-68+36-64+57-43)/3 = -16.67.

Last week I pointed out that the lifetime averages for the three components were -70%, +54%, and -66%. These three readings would yield a Comfort Index of -21. So, as I suggested last week, a reading of -17 might be interpreted as being a little upbeat since it is four points higher than the historical average of the index.

From time to time ABC/Money asks other questions in addition to the basic three. This time around they added a question about local economic conditions. 47% of the respondents described their local economy as good or excellent. This contrasts with a 32% positive response regarding the nation's economy.

What's this all mean? I believe that the 64% negative attitude about buying things is particularly significant. Consumer expenditures account for 2/3 of the nation's Gross Domestic Product (GDP). So, if 64% of the population is cautious about spending money, this puts a real damper on economic growth.

Now, on to one of the reasons why consumers might be cautious about spending money. Today, the Labor Department's Employment and Training Administration released its weekly report on new claims for state unemployment. New claims rose 5,000 in the week ending February 17, to a level of 391,000. The four-week moving average of new claims was 383,000, a little less than last week's 388,500 reading, but, still the highest level since July 30 of last year, and up 14.67% from a year ago. The year-over-year change in the four-week moving average has trended steadily upward during the past year from a low of -12% to the current +14.67% level. Couple this with the fact that there has been no change in real earnings for six years and its easy to see why wage earners are cautious about spending money.

Byline: Lafferty (MF Merlin)