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Consumer Confidence Sinks

The Conference Board's Consumer Confidence Index in February fell to its lowest point in five years, keeping the economy on recession watch as shoppers...

The Conference Board’s Consumer Confidence Index in February fell to its lowest point in five years, keeping the economy on recession watch as shoppers fretted over the job market.

This story first appeared in the February 27, 2008 issue of WWD.  Subscribe Today.

The Index dropped to 75 from 87.3 in January. Its two components also declined in February. The Expectations Index decreased to 57.9 from 69.3, while the Present Situation Index dropped to 100.6 from 114.3 last month.

“The decline in consumer confidence, including the drop in consumers’ assessment of the labor market, has a recession-like feel to it. While we do not think that consumer confidence drives spending, we believe that it can pick up major swings in economic activity and the cumulative decline in confidence keeps us on recession watch,” said John Ryding, chief U.S. economist at Bear, Stearns & Co., in a research note.

Ryding said confidence is “much weaker than expected,” citing the deterioration of consumers’ assessment of labor market conditions as one reason for the sharp decline in February.

Lynn Franco, director of The Conference Board Consumer Research Center, said the overall Index continues to lose ground and, with the “exception of the Iraqi War in 2003, is now at its lowest level in nearly 15 years.” In November 1993, the Index was at 71.9.

“The weakening in consumers’ assessment of current conditions, fueled by a combination of less favorable business conditions and a sharp rise in the number of consumers saying jobs are hard to get, suggests that the pace of growth in early 2008 has slowed even further. Consumers’ expectations have also deteriorated significantly and are now at a 17-year low (January 1991, 55.3). With so few consumers expecting conditions to turnaround in the months ahead, the outlook for the economy continues to worsen and the risk of a recession continues to increase,” Franco said.

As for present conditions, consumers who claimed business conditions are “bad” rose slightly to 21.8 percent from 20.1 percent, and those who said business conditions are “good” dropped to 18.5 percent from 20.6 percent. Consumers were also more pessimistic about the job market, as those who said jobs are “hard to get” rose to 23.8 percent from 20.6 percent, while those who believed jobs are “plentiful” declined to 20.6 percent from 23.8 percent.


In the latest poll, short-term expectations also fell, as consumers who said business conditions will worsen over the next six months increased sharply to 21.4 percent from 16.3 percent. Respondents who anticipated business conditions to improve declined to 9.5 percent from 11.5 percent in January.

On the jobs front, the outlook over the next six months also was tinged with pessimism. Those surveyed who expected fewer jobs in the months ahead spike up to 27.9 percent from last month’s 21.9 percent, while the respondents who said they expect more jobs fell to 9 percent from 10.5 percent. Moreover, the consumers who said they expect their incomes to rise fell to 17 percent from 18.1 percent.