NEW YORK — Consumer confidence in the U.S. economy took an unexpectedly sharp turn for the worse in February, plummeting to its lowest level since October 1993, as Americans’ economic and geopolitical jitters grew more acute.
This story first appeared in the February 26, 2003 issue of WWD. Subscribe Today.
The Conference Board’s monthly index of consumer confidence, which is based on a representative sample of 5,000 U.S. households, fell for the third consecutive month — this time a whopping 14.8 points to a worse-than-expected 64, from a downwardly revised 78.8 in January — as both consumers’ current and near-term outlooks retreated. Economists, on average, were targeting a drop to 76.5 in February.
The Expectations Index fell 15.5 points to 65.6 in February from 81.1 in January. The Present Situation Index slumped 13.7 points to 61.1 from 75.3. The overall index is at its lowest level since the 60.5 registered in October 1993, when the country was trying to come out of a recession.
“Lackluster job and financial markets, rising fuel costs and the increasing threat of war and terrorism appear to have taken a toll on consumers,” said Lynn Franco, director of The Conference Board’s Consumer Research Center. “This month’s confidence readings paint a gloomy picture of current economic conditions, with no apparent rebound on the short-term horizon.”
Attributing the 19 percent drop to a sense of war weariness, Kamalesh Rao, an economist with Moody’s Investors Services, said steep declines in consumer confidence like the one that occurred this month are rare.
He noted February’s decrease was the largest month-to-month slump since the 16.7 percent drop in August 1990, when Iraq invaded Kuwait and touched off fears of the confrontation that followed five months later. He also noted the index dropped 15 percent following the terrorist attacks of Sept. 11, 2001.
On the other hand, he said consumer confidence could bounce back once the uncertainty about war is resolved.
Consumers’ appraisal of current conditions deteriorated, especially in light of last month’s improved view. Those rating current business conditions as “bad” rose to 30.7 percent from 26.7 percent, while those holding the opposite view declined to 13.2 percent from 15 percent. The employment picture was also troubling as fewer respondents said they believed jobs were plentiful — 11.2 percent, down from 14.5 percent. Those rating jobs as less plentiful ticked up to 58.7 percent from 56.6 percent. More consumers — 30.1 percent compared with 28.9 percent — said jobs were hard to get.
The assessment for the short-term future also contracted in February as those anticipating business conditions to sour over the next six months rose to 19 percent from 14 percent, while those anticipating conditions will get better declined to 15.3 percent from 17.7 percent. The labor outlook also grew more dismal as fewer participants said they expected more jobs (12.7 percent from 14.2 percent), while more said they anticipate fewer jobs (28.4 percent from 21.2 percent).
Those anticipating an increase in their incomes decreased to 15.2 percent compared with 18.4 percent, while those expecting a decrease intensified to 12.5 percent from 10.2 percent.
Moody’s Rao said uncertainty about domestic security and war is cutting into confidence more than concerns about the economy. Business conditions, he noted, feature strong fundamentals, including profit and revenue growth in a number of industry sectors, which could lead to increased employment and capital spending.
Rao said retail sales figures in January indicate consumers are not pulling back on their spending habits, thanks to savings from home refinancing and tax breaks.