Consumer confidence declined in February, reversing January's gains. The Conference Board's Consumer Confidence Index was 87.3, down 9.1 points from the revised 96.4 in January. This was well below economists' expectations of 93.1. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.
Confidence fell across both portions of the Conference Board index. The Present Conditions index was down by 6.3 points to 73.1 in February. This index measures how consumers perceive the current state of the economy.
The Expectations portion of the index, a measure of future economic activity, dropped to 96.8 in February from 107.8 in January.
The University of Michigan's Consumer Sentiment Index, a comparable index, also decreased in February, dropping to 94.4 from 103.8 in January. Each of the component indices spiraled downward. The Present Conditions index fell 5.9 points to 103.6 in February, while the Expectations portion declined to 88.5 from 100.1 in January.
February's dramatic decrease in consumer confidence was unexpected, but not unusual. Consumers may be concerned that the labor market is not expanding as fast as expected. Economists also suggest that the large increase in confidence in January may have been higher than conditions should warrant, causing February's decrease to appear even worse as the index fell to a more reasonable level. Fluctuations in consumer confidence are common as overall economic conditions gradually improve. U.S. Federal Reserve Governor Edward Gramlich states, "This is a modest drop. There's always some volatility. It's a fluctuation and confidence has come back from last year."
Several factors presently exist which support consumer confidence including continued stock market gains and low interest rates. Consumers may also get a cash flow boost from tax refunds this spring.
Consumer confidence should rise over time as the labor market strengthens and overall recovery continues, though some fluctuations are still possible. Since consumer spending accounts for two-thirds of the U.S. economy, consumer confidence is a closely watched economic indicator.
Sources: www.conference-board.com
www.economy.com
