The October consumer confidence reading provided retailers with the opposite of comfort and joy leading into holiday.
The Conference Board’s Consumer Confidence Index hit an all-time low, plunging to 38 from 61.4 in September and 95.2 last October. The consensus among economists was 52.
The 23.4-point drop, the third largest in history, put the index at its lowest level since the Conference Board began tracking consumer sentiment in 1967. Both components of the index dropped this month, with the Present Situation index falling to 41.9 from 61.1 last month and, perhaps more ominously, the Expectations index plummeting to 35.5 from 61.5 in September.
“The impact of the financial crisis over the last several weeks has clearly taken a toll,” said Lynn Franco, director of The Conference Board Consumer Research Center.
Franco said the survey results suggest that the fourth quarter is off to a weaker start than the third quarter.
“A significantly larger proportion than last month foresees business and labor market conditions worsening,” she said. “Their earnings outlook, as well as inflation outlook, is also more pessimistic, and this news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season.”
The numbers, released Tuesday morning, briefly sent stocks lower before contributing to speculation about a greater-than-expected drop in interest rates when the Federal Reserve meets today. Propelled by that sentiment, bargain-hunting and strength in financing, Wall Street indexes surged.
Maury Harris, economist at UBS, said the “plunge in confidence” would play a role in shaping economic policy, stating that the Fed, initially expected to cut the funds rate by 25 basis points, is now anticipated to impose a reduction of 0.5 percent to 1 percent.
John Ryding, economist at RDQ Economics, said The Conference Board’s result “no doubt reflects the fears of a financial and equity market meltdown…the drop in the net reading on labor market conditions to the lowest level since October 1993 signals a significant deterioration in the job market.”
The percentage of consumers who said jobs are “hard to get” rose to 37.2 percent from 32.2 percent last month, while those who said jobs are “plentiful” fell to 8.9 percent from 12.6 percent. For the six-month expectations outlook, respondents who said they expect business conditions to worsen surged to 36.6 percent from 21 percent. Those who anticipate conditions will improve declined to 9.9 percent from 13.4 percent. Consumers also were pessimistic on the labor front, with those expecting fewer jobs in the months ahead rising to 41.5 percent from 26.9 percent.
“The layoff cycle will begin in earnest in January after firms assess their balance sheets and margin trends,” said Richard D. Hastings, consumer strategist at Global Hunter Securities. He said the consumer confidence reflects “capitulation, not by equities, but by consumers, and this ironically means the bottom, for equities, is not firming up anytime soon.”
However, Stephen Gallagher, economist at Société Générale, saw some hope in lower energy prices.
“The plunge in energy prices through the end of November suggests substantial price relief that will be supportive later in [the fourth quarter] and early 2009,” he said. “The overall picture may not be strength but, as shock dissipates, the increase in purchasing power should lead to a significant pickup in consumer activity.”
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