Consumer confidence plunged in October. The Conference Board Consumer Confidence Index was 85.5, dropping 11.5 points from the revised 97.0 in September. This was much lower than economists' October forecasts of 95.9 and the lowest index since February 1994. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.
The Present Conditions Index, which is a factor in the total composite index, fell 18 points in October, following a 19-point drop in September. This index is a measure of how consumers perceive the current state of the economy. The Expectations Index, a measure of future economic activity, fell to 70.8 from 78.1 last month.
The already struggling economy, combined with ever increasing layoffs and the threat of terrorist activity, has led to the drop in consumer confidence.
Interestingly, the updated October University of Michigan's Consumer Sentiment Index, a comparable index, rose 0.9 points from September to 82.7. Their Expectations Index also rose from 73.5 in September to 75.5 in October. There are two primary reasons for the discrepancy between the indices.
First, the Conference Board surveys situations based upon labor market and business conditions while the University of Michigan survey addresses financial well-being and buying plans. Second, and perhaps more important, is the time horizon covered by Expectations indices questioning. The Conference Board questions economic expectations for the next six months, while the University of Michigan surveys expectations for the next one year to five years. This could possibly indicate that although consumers are uncertain about the near future, as measured by the Conference Board, they feel that the outlook in the next year or more may be more positive.
Consumer spending accounts for two-thirds of the economy, so these indices
are watched closely. Presently, these indices point to continued economic
struggle through the winter, and a likely strengthening through next summer.
Sources:
www.cnnfn.com, 9/28/01
www.conference-board.com, 9/28/01
www.economy.com, 9/28/01
