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Consumer Confidence Falls Off a Cliff

March 3rd, 2010 9:30 AM by Lehel S.

Consumer Confidence Falls Off a Cliff

The markets got a shock last Tuesday when the Conference Board announced that its widely followed Consumer Confidence Index basically fell off a cliff last month.  The Index plunged to 46.0 in February from January’s 56.5, a drop of apprx. 20%, following several months of increases.  This is the largest monthly plunge in consumer confidence in recent history, and was totally unexpected.

The non-partisan Conference Board said that consumers are still in a generally “sour mood,” due partly to continued pessimism about job prospects and income worries, and suggested that consumer spending could fall in the months ahead.  Remember that consumer spending accounts for apprx. 70% of GDP.

Lynn Franco, director of the Conference Board’s ConsumerResearchCenter, said in an interview following the report’s release: “This recovery has been driven more by business than by the consumer. The fact that we’re not adding jobs but are still shedding them is doing very little to comfort consumers. While other indicators are showing that the recession is over, to the consumer it still feels like we’re still mired in the recession.”

“Concerns about current business conditions and the job market pushed the Present Situation Index down to its lowest level in 27 years. Consumers’ short-term outlook also took a turn for the worse, with fewer consumers anticipating an improvement in business conditions and the job market over the next six months. Consumers also remain extremely pessimistic about their income prospects. This combination of earnings and job anxieties is likely to continue to curb spending.” 

There has been a great deal of discussion about the plunge in consumer confidence since last week’s surprising report.  Some of the reasons are obvious, as pointed out above by the Conference Board.  People are worried about their jobs, or lack thereof, and millions of Americans who are working are “under-employed” in jobs that pay a fraction of what they were used to making.  American consumers are quickly figuring out that this is a “jobless recovery,” and they are increasingly unhappy about it.

As I will detail below, credit remains very tight.  Small business owners can’t get loans to expand their operations.  Among those who can get access to credit, many are so concerned about the economy and a double-dip recession that they are reluctant to take on more debt, and some are even paying down their lines of credit.

At the risk of going political, I happen to believe that millions of Americans have recently turned negative because the “hope and change” that President Obama promised has not happened.  Instead, they see the government spending outrageous sums of money and running $1+ trillion deficits as far as the eye can see.  No wonder consumer confidence is in the tank.

Speaking of falling off a cliff, have you seen the latest polls on how the American public views the job Congress is doing?  The latest Rasmussen poll last week found that 71% of Americans believe that Congress is doing a “bad” job, while only 10% believe they are doing a “good” job.  This is the lowest approval rating ever recorded by Rasmussen and was up from 61% just one month earlier. 

Posted in:General
Posted by Lehel S. on March 3rd, 2010 9:30 AM



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