A dire view of current conditions dragged down The Conference Board’s Consumer Confidence Index to its lowest level ever.
This story first appeared in the December 31, 2008 issue of WWD. Subscribe Today.
December’s overall reading of 38 was well below the 45 expected by economists polled by Thomson Reuters. And the index was down from a revised 44.7 in November and only slightly below the 38.8 registered in October.
However, the Present Situation Index — a barometer of how consumers are feeling now as opposed to what they expect in a matter of six months — fell to 29.4, its lowest level since April 1992 and just slightly more than a quarter of the 114.3 registered in January.
The Present Situation Index was also 14.4 points below the Expectations Index, which dropped to 43.8 from 46.2 in November. This was only the third time this year that current conditions underperformed the outlook for the future, and this time it was by far more than the 3.9 spread in November or the 0.4 gap in September.
“The further erosion of the Consumer Confidence Index reflects the rapid and steep deterioration of economic conditions that occurred in the fourth quarter of 2008,” said Lynn Franco, director of The Conference Board Consumer Research Center. “The Present Situation Index is now close to levels last seen in the months following the 1990-91 recession, but is not as low as levels reached during the 1981-82 recession.”
Franco said declines in the Expectations Index appear to be moderating, and that both subindices should be watched to see if they are approaching a bottom.
The overall economic outlook remains “quite dismal” for the first half of next year, and only a “modest recovery” is expected in the second half, she said.
According to Brian Bethune, chief U.S. financial economist for IHS Global Insight, consumers are in “short-term shock.”
“We are now in the worst part of the downturn,” he said. “There was some indication that consumer confidence was stabilizing in November — mainly because of falling gas prices — but current conditions have eclipsed that.”
Employment market conditions took a “sharp turn for the worse” in December as layoff notices became more pervasive across industries, businesses expanded year-end plant closings and “downward pressures” became more widespread, Bethune said.
The somber mood weighed heavily on apprehensive retailers who had hoped to cash in on holiday buying. The International Council of Shopping Centers said Tuesday that comparable-store sales for the week ended Saturday fell 1.8 percent from a year earlier, and, as a result, the trade group is projecting a comp sales drop of at least 1 percent for December.
“The 2008 recession, widespread heavy discounting and adverse pre-holiday weather all coalesced to produce the weakest holiday season since at least 1970,” said the ICSC’s chief economist and director of research, Michael Niemira.
Among the 5,000 participating households in the Conference Board’s survey, business conditions were viewed as eroding significantly. Those who claimed business conditions are “bad” rose to 46 percent from 40.6 percent, while those who said business conditions are “good” fell to 7.7 percent from 10.1 percent last month. The respondents who said jobs are “hard to get” edged up to 42 percent from 37.1 percent in November, while those who claimed jobs are “plentiful” slid to 6.2 percent from 8.7 percent.
The percentage of respondents expecting fewer jobs in the next six months rose to 41 from 33.7, with those anticipating more jobs increasing to 9.7 from 9.2. The portion of consumers expecting their incomes to increase fell to 12.7 percent from 13.1 percent.
But with financial markets strengthening, interest rates dropping and another stimulus package expected, consumer confidence should pick up after roughly two or three months, Bethune said.
“It’s hard to see beyond what’s happening now.,” he said. “We’re all biting the bullet.”