NEW YORK — With Americans spooked by worsening labor conditions and the continuing threat of war, consumer confidence in October suffered its biggest decline since the Sept. 11 terrorist attacks and fell to its lowest level in almost nine years.
This story first appeared in the October 30, 2002 issue of WWD. Subscribe Today.
The New York-based Conference Board said its monthly index of consumer confidence, based on a representative sample of 5,000 U.S. households, plummeted 14.3 points to 79.4 from a revised 93.7 in September. It was the fifth straight decline for the index and was far worse than economists were expecting.
It was the lowest reading for the confidence index since 71.9 in November 1993, and the biggest month-to-month decline since September 2001, when confidence plummeted 17 points, or 14.9 percent, to 97 from 114 in August.
Consumers assigned far more dismal ratings to both current circumstances and future prospects in October, adding to fears of a grim holiday season. The Present Situation Index, the evaluation of ongoing conditions that constitutes half of the overall index, fell 11 points to 77.5 in October from 88.5 last month. The Expectations Index, the outlook for the next six months, dropped even more drastically, falling 16.5 points to 80.7 from 97.2.
With signs of consumer impatience escalating, retail stocks retreated Tuesday. After starting the day lower, retail stocks rallied late in the day, sending the Standard & Poor’s Retail Index up 2.68 points, or 0.9 percent, to 293.27, as the Dow Jones Industrial Average finished the day up less than 1 point at 8,368.94.
“A weak labor market, the threat of military action in Iraq and a prolonged decline in the financial markets have clearly dampened both consumers’ confidence and their expectations for the near future,” Lynn Franco, director of the Conference Board’s Consumer Research Center, said in a statement. “The outlook for the holiday retail season is now fairly bleak. Without the likelihood of a pickup in consumer spending, an already weak economic recovery could weaken further.”
John Lonski, an economist with Moody’s Investors Services, said he expects this holiday season to be the third consecutive year of disappointing or subpar sales growth. He said he is forecasting comparable-store sales growth of about 2.5 percent this year versus comp increases of 3 percent in 2001 and 0.8 percent in 2000. Comps grew 6.9 percent in 1999, 6.2 percent in 1998 and 5.4 percent in 1997.
Although surprised, economists said this month’s reading may be an aberration, reflective of the mounting threats of terror, the suburban sniper attacks and a shaky stock market, but not necessarily consumer spending, which has remained fairly buoyant all year.
Lonski threw his vote on the side of aberration, noting growth in new home sales contradicted the deep decline in consumer confidence. “Why does the most confidence-sensitive expenditure still thrive?” he asked rhetorically. “It tells you there is a limit to the upside potential for consumer spending, but it doesn’t necessarily imply spending will decline.”
He also noted this month’s reading still tops the average during the first 33 months of the previous economic recovery — April 1991 to to December 1993 — by 14.1 points, or 22 percent.
James Glassman, an economist with J.P. Morgan Chase and Co., said that, while October’s reading demonstrates people’s uneasy sense about economic and political risk, Americans ultimately will get around to spending their income. “There is a disconnect between how people feel about the world and what they actually do,” Glassman said. “Still, you have to be concerned when you see a break like this. It tells you we are in a fragile environment where people are on edge.”
He said he expects retailers to take a hit this holiday as consumers take a break from spending, which rose 4.5 percent in the third quarter.
In the index’s present circumstances reading, 27.6 percent rated October’s business conditions as “bad,” up from 23.8 percent in September. Those rating conditions as “good” fell to 15.6 percent versus 18.5 percent in September.
Consumers reporting jobs are hard to get rose to 27.3 percent from 25.4 percent last month and those claiming jobs are plentiful declined to 14.8 percent from 15.9 percent in September.
Consumers’ expectations for the next six months dropped more precipitously. More respondents said they are expecting a deterioration in business conditions in the next months — 14.1 percent from 9.7 percent — while fewer consumers — 19 percent in October compared with 21.6 percent in September — said they expected conditions to improve.
The employment outlook was also less favorable. A smaller percentage of consumers — 15 percent from 17.3 percent in September — expect more job availability, while the percentage expecting fewer job openings rose to 22.1 percent from 16.8 percent last month.
Income prospects also turned more pessimistic, as only 17.8 percent of consumers anticipate an increase in their incomes, down from 21.5 percent last month.
Fewer households said they were planning purchases of cars and homes, which, fueled by low interest rates, has been a bright spot in the economy.