Consumer Confidence Drops to a 2-Year Low
The confidence of U.S. consumers slid sharply in October to its lowest level in almost two years, deepening concerns about an emerging slowdown in the national economy, the Conference Board reported Tuesday.
More worrisome was a significant decline in Americans’ expectations for the future, according to the business-oriented research group, reflecting stock market turbulence, President Clinton’s troubles and fears about the global economy.
“Growing anxiety about the financial markets, combined with political concerns and recent layoff announcements, have given consumers the jitters,” said Lynn Franco, the Conference Board’s associate director.
The consumer confidence index fell 9.1 points to 117.3 in October, the lowest level since December 1996 and “a level associated with sluggish economic growth,” Franco said.
It was the index’s fourth straight monthly decline since reaching a peak of 138.2 in June.
Separately, in a finding that economists found particularly significant, a Conference Board barometer of people’s expectations for the coming six months fell 10.2 points to a lackluster 86.6--a drop of almost 30 points since its June peak.
“Every recent recession has been preceded by a fall in this indicator,” said Mickey D. Levy, chief economist with Bank of America, though he added that not every fall in the indicator was followed by a recession.
Economists consider the mood of American consumers a guidepost to the future because consumer spending accounts for more than two-thirds of the U.S. economy. And while consumer confidence remains at historically healthy levels, the recent trend has major implications for retailers as the holiday shopping season approaches.
“Any further decline in the confidence index could spell a bleak season for retailers,” Franco said.
While the broader economy has slowed in part due to slumping exports to crisis-ridden Asian countries, so far the American consumer has been a major source of strength.
At the very least, analysts said, the new survey suggested that the economy would grow more modestly in coming months.
“Consumer confidence has been jarred. Consumer expectations have been jarred. And it indicates a slowdown in consumer spending,” said Bank of America’s Levy.
The Conference Board index was based on a national survey of 5,000 households that was begun Oct. 1, just after the Federal Reserve imposed the first of two interest rate cuts that were designed to bolster the psychology of investors, consumers and business executives.
The survey was completed just as the Fed announced the second interest rate cut Oct. 15.
While the stock market roared in approval of those rate cuts, recouping a substantial portion of its recent losses, the new survey might reveal a more ambivalent reaction on the part of consumers generally.
“Wall Street may have rebounded in the last couple of weeks, but I think most Americans realize that the risk [of recession] has heightened,” said Nancy J. Kimelman, chief economist with Thomson Global Markets in Boston. “It’s been a rough couple of months, and the consumer knows it.”
Report’s Release Sends Stock Market Lower
To many observers, the stock market’s summertime plunge has overshadowed all other causes of the public’s slipping confidence. On Tuesday, however, cause and effect were reversed: The Dow Jones industrial average ended down 66.17 points at 8,366.04 as news of the consumer survey helped wipe out an early gain of more than 100 points.
With many households teetering under weighty debt burdens, economists have expected consumers to ease off the feverish 6% rate of spending increases recorded during the first half of this year.
Just Tuesday, the National Retail Federation predicted that consumers will spend 5% more during the 1998 holiday season than they did last year. But the group’s economist, Rosalind Wells, pointedly cautioned that the upbeat forecast assumes no further “negative surprises,” economically or politically.
Similarly, the labor market continues to show strength, although the latest reports might be signaling a change. First-time claims for unemployment insurance edged up to 318,000 last week from an average of about 300,000 over the prior two months. While the level is not high enough to draw concern, the direction drew some notice.
Confidence Stronger on West Coast
The same might be said of consumer confidence: It is significantly above recession levels, although the shift in course could be telling.
“I don’t want to be alarmist, but I want to indicate that it was a poor report for the economy,” said Michael Moran, chief economist at Daiwa Securities in New York. At the same time, he added, “If the financial markets can settle down, I think you might see confidence come back some.”
Consumer confidence on the West Coast, a figure dominated by California, was measured at 118.6, slightly above the national average, according to the Conference Board. The Middle Atlantic states had the weakest confidence, gauged at 95.4. Leading the nation at 130.7 were the Midwest region of Ohio, Indiana, Illinois, Michigan and Wisconsin.
The index is reported on a scale in which consumer confidence in 1985 is set at 100.
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Consumer Confidence
From a monthly survey of 5,000 U.S. households. Index: 1985=100.
October: 117.3
Source: Conference Board
