Consumer Confidence fell in February after two months of growth. The Conference Board's Consumer Confidence Index was 94.1, down 3.7 points from the revised 97.8 in January. This was below economist's expectations of 97.0. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.
Confidence weakened across both portions of the Conference Board index. The Expectations portion of the index, measuring future economic activity, registered 93.6 in February, down from a revised 97.6 in January. The Present Conditions Index, another factor in the total composite index, fell 3.3 points in February to 94.8. This index is a measure of how consumers perceive the current state of the economy. Spending behavior is closely related to consumer's feelings in the Present Conditions Index.
The University of Michigan's February Consumer Sentiment Index, a comparable index, also fell to 90.7 from 93.0 last month. The component indices were mixed in February. The Present Conditions Index was up slightly, 96.2 from 95.7 in January, however Expectations decreased 4.1 points to 87.2.
The disparity between the two Present Conditions Indices can be explained by differences in the design of the surveys. The Conference Board index assesses labor market and general business conditions while the Michigan index is based on buying climate and the financial health of the household.
Economists site the decrease in consumer confidence on the failure of Congress to pass either an economic stimulus plan or an extension of unemployment insurance benefits beyond the usual 26 weeks. Enron's troubles and the flat labor market also contributed to February's weakened consumer confidence.
Presently, economists expect a slow economic rebound, with the labor market recovering in the second half of the year and unemployment peaking at 6.3 percent. Consumer spending may tighten as joblessness increases and unemployment insurance benefits run out. Since consumer spending accounts for two-thirds of the U.S. economy, consumer confidence is a critical component to economic recovery. On the positive side, current consumer confidence remains higher than during the recession of the early 1990s and some fluctuations in consumer confidence should be expected during a recovery.
Sources: www.cnnfn.com
www.conference-board.com
www.economy.com
