"He Told You so. (Economist Fabian Linden Bases His Forecasts on American Consumers' Attitudes)"

By Martin Kihn
4 February 1991

He Told You So

Why are American consumers such good economic forecasters? "Because they're not economists," laughs Fabian Linden, an economist.

Linden, 58, heads the Consumer Research Center at the Conference Board, a New York-based business think tank. He bases his forecasts on consumers' own sentiments. Each month 4,000 people, randomly chosen nationwide, answer Linden's seven-item questionnaire. They rate the economy's condition, guess its future course and reveal any big-ticket purchases they are planning to make.

Linden's Consumer Confidence Index has been far better at forecasting recessions than have been most economists' econometric models. The last three recessions-1981-82, 1974-75 and 1969-70-were foreshadowed three to six months before they began by a drop in Linden's index. Conversely, the index anticipated recoveries months ahead of other economic statistics.

Linden's index, along with a smaller consumer survey compiled by the University of Michigan, is classified as a leading indicator by the U.S. Department of Commerce. While other leading indicators measure trends at least a month old, the Consumer Confidence Index provides what Linden calls "instant playback."

With the Consumer Confidence Index currently sitting at a very low 61.3, compared with a 1985 base of 100, Linden is decidedly gloomy about the short term. The index retreated 17% after Iraq's invasion of Kuwait and fell an unprecedented 27% in October. In November and December it dropped slightly. "The consumer is concerned," warns Linden, "and a concerned consumer is a cautious spender."

ILLUSTRATION: portrait CAPTION: Fabian Linden (portrait)