The Confidence of Consumers Dives Sharply : Economy: A vital barometer falls to levels typically found in the depth of recessions, the Conference Board reports.
The confidence of American consumers, considered a vital barometer of the economy, has plunged to levels typically found in the depth of recessions and signals rising despair over the job outlook, the Conference Board reported Tuesday.
The board’s monthly consumer-confidence index tumbled in November to its lowest level in more than 10 years. A separate consumer gauge by the University of Michigan reportedly fell as well.
“The sharp decline in consumer confidence over the past two months cuts across all segments of the population--all age groups, all income brackets and all regions of the country,” said Fabian Linden, executive director of the Conference Board’s Consumer Research Center. “This is the classical profile of a recession.”
Despite the rock-bottom confidence levels, many economists say the nation is still in a recovery, albeit a precarious one. The dramatic drop in public expectations about the economy is a politically explosive development as the election year approaches.
Earlier this week, public opinion surveys conducted by the Los Angeles Times and also the New York Times showed that Americans’ disaffection over the economy has cut sharply into support for President Bush.
On Tuesday, the President declared his support for a Republican tax-cut package, one to which he previously had been aloof. Meanwhile, news of the plunge in confidence levels raised pressure on the Federal Reserve Board to lower interest rates once again.
Word also spread in financial markets Tuesday that a private survey of consumer sentiment taken by the University of Michigan showed a decline of several points from its October level. The unconfirmed reports contributed to a brief rally in the bond market, as investors anticipated that lower interest rates might be required to jump-start the U.S. economy.
The index by the Conference Board, a New York-based business research organization, gauged at 50.6 for November, fell nine points during the month--part of a 22-point slide since September. Readings under 70 are associated with recessions. Today’s level of 50.6 is now lower than the 54.3 bottom hit during the 1982 recession.
The Conference Board hasn’t registered this weak a reading since May, 1980, a time when Carter Administration credit controls had sent the U.S. economy into free-fall.
“It’s ugly,” said Stephen S. Roach, a senior economist at the Morgan Stanley investment firm, of the startling lack of consumer confidence. “It’s worse than it was during the Persian Gulf War, worse than it was in the depths of the recession of the early 1980s.”
Another sign of shaky times: The Mortgage Bankers Assn. reported a sharp increase in “seriously delinquent” mortgages--those at least 90 days overdue--in the third quarter. The percentage of loans in foreclosure rose slightly, while the delinquency rate for mortgages 30 days overdue fell a bit.
While most analysts agree that the economy appears troublingly fragile, many have been surprised by the sharp deterioration in consumer attitudes, which has been fueled by news of layoffs and cutbacks.
In the last few weeks, dozens of well-known employers have announced planned job cuts, including Hughes Aircraft, L.A. Gear, McDonnell Douglas, Salomon Brothers and Unocal. From government offices to IBM, employers once viewed as layoff-resistant have shown an increasing willingness to eliminate jobs.
“It’s hitting a lot of industries and occupations that never had this before,” Lawrence Chimerine, an adviser to DRI-McGraw Hill in Washington, said of job anxieties. “People are absolutely frightened.”
Some people also may be disheartened by the reality of a lackluster recovery, following months of forecasts that the economy was about to bounce back.
Typically, hiring picks up about five to six months after the end of a recession, said Roach of Morgan Stanley, who calculates that the 1990-91 slump concluded last April. But by autumn, “there was no pickup in hiring, no generating of income. American consumers finally faced the reality that this recovery is different from recoveries of the past--and threw in the towel.”
A 10-Year Low Consumer confidence since 1980 Annual average except for 1991 figure ‘80: 73.8 ‘81: 77.4 ‘82: 59.0 ‘83: 85.7 ‘84: 102.3 ‘85: 100.0 ‘86: 94.7 ‘87: 102.6 ‘88: 115.2 ‘89: 116.8 ‘90: 91.5 November, 1991: 50.6
Consumer confidence in 1991 From a monthly survey of 5,000 U.S. households Index 1985 equal 100 ‘90: 61.7 Source: Conference Board
