By Melanie King
A decline in the Conference Board”s Consumer Confidence Index in September may show that consumer spending will no longer keep the country out of a recession.
“While consumers have managed to keep the U.S. out of a recession for several years now, that soon may no longer be the case,” said Lynne Franco, director of the Conference Board”s Consumer Research Center.
The Conference Board”s Consumer Confidence Index dropped 16.4 points in
September, the largest monthly decline in the public”s confidence in the economy since October 1990.
While a decline in the index in September was expected, the terrorist attacks of Sept. 11 further stimulated the downward trend in confidence, she said.
“I think if we take a look at the overall trend in the past year we”ll see that there has been a tremendous erosion in confidence,” Franco said. “There is definitely something underway so to speak.”
It is still too soon to make any predictions about the future of the economy, said Norman Thurston, a BYU economics professor.
“The fundamental question is what makes the economy,” Thurston said. “I”m not sure anybody knows.”
While it is difficult to define whether or not the country is in a recession, it is certain the economy has been creeping along for the last year to 15 months, Thurston said.
“The amazing thing is it has been holding on,” he said.
In addition to the unexpected terrorist attack, the deteriorating labor market has further eroded confidence. Consumers who rate business conditions as favorable fell from 27.7 percent to 22 percent in September. The 16.4-point drop is the largest since the index fell by 23 points in October 1990, more than a year prior to Desert Storm.
The conditions of our economy today cannot be compared to those of the economy prior to the Gulf War, Thurston said.
“Even 10 years ago things were just different,” Thurston said.
The index, based on a representative survey of 5,000 U.S. households, is a measure of the public”s confidence in the health of the economy.
“Right now what it”s telling us is consumers are very concerned, rating current conditions much less favorably than last month,” said Lynn Franco, director of the Conference Board”s Consumer Research Center.
The survey is based on consumers” assessment of current business conditions, employment availability and expectations about future conditions. Consumers rate everything from how easy they feel it is to find a job, to whether or not they expect their income to increase over the next six months.
Consumers expectations about the economy account for about 60 percent of the index, while their assessment of the current economic situation accounts for about 40 percent.
These numbers are an important indicator of the health of the economy because consumer spending accounts for two-thirds of economic activity, Franco said.
The index now stands at 97.6, down from 114 in August. The Present Situation Index fell from 144.5 to 125.2, and the Expectations Index fell from 93.7 to 79.2, said Franco.
Expectations for the next six months were even more pessimistic with those expecting business conditions to worsen rising from 10.7 percent to 15 percent, Franco said.
Thurston suggests that consumers should get back to normal as soon as they can.
“Just live life normal and just do what you were going to do,” he said. “I haven”t changed anything.”
