ANALYSTS PONDERING SHARP DECLINE IN OCTOBER CONSUMER CONFIDENCE
Byline: Jennifer Owens
WASHINGTON — Consumer confidence tumbled nearly seven points in October after hitting a record high of 130.2 in September, raising the question of whether it’s an aberration or the start of something more significant.
Measured before Monday’s 554-point drop in the Dow Jones Industrial Average, the Consumer Confidence Index fell to 123.3 points in October from a revised 130.2 points in September, according to figures released Tuesday by the Conference Board. The slide followed two straight months of advances and returned the index to the 120s, where it had been hovering since May.
Components of the monthly survey of 5,000 households also fell. The Present Situation Index, which measures current views, slid to 147.4 in October from 157.6 in September. The drop marked the lowest Present Situation Index since April, when it registered 141.6. Meanwhile, the Expectations Index also dropped in October, but not as significantly. That component fell to 107.3 from 111.9 in September — its lowest reading since July.
Despite the declines, Lynn Franco, associate director of the Consumer Board’s Consumer Research Center, said consumer confidence still remains strong overall. Although respondents expressed increased concern over their own incomes, “their outlook for the economy is really unchanged,” she said.
According to the survey, the percentage of consumers expecting the economy to improve during the next six months held nearly steady in October at 19.2, while the percentage of respondents expecting wages to increase over the next six months fell to 24.7 in October from 28.4 in September. The percentage of consumers expecting their wages to hold steady over the next six months increased, however, to 69.5 in October from 65.4 in September.
Franco said the index will be closely watched in the coming months.
“It’s too early to determine whether the October decline signals the beginning of a downward trend in consumer confidence or whether it’s simply a temporary blip in a still-strong upward pattern,” she said.
Monday’s stock market drop may slow November’s traditionally strong consumer confidence results, but Franco said it shouldn’t have a dramatic impact. Most people in the market are long-term investors who will wait out the tumult, she said.
“I don’t think it’s going to dampen the holiday season,” she said. “It’s not going to be a lackluster or a blockbuster season. It’s going to be somewhere between there.”
Sandra Shaber, an economist with the WEFA Group in Philadelphia, disagreed, saying she believes that unlike 1987’s stock market crash, Monday’s stock market drop may indeed affect consumer confidence about holiday business.
“This time it might have a somewhat bigger impact because a huge bulk of the population is closer to retirement this time around, and more have a bigger stake in the market,” Shaber said. “It’s hard to tell whether the dust has settled yet.”
According to the survey, only 33.2 percent of respondents called October business conditions “good,” down from 39.5 percent in September. Meanwhile, 13 percent called conditions “bad” in October, up from 12.1 percent the previous month.
More than 48 percent said jobs were not as plentiful in October, up about one point over last month.
“I think it’s time for some sobering,” said Shaber. For while the nation’s average personal income has grown about 3 percent annually during the past few years, the increase is misleading. Shaber said middle-class wages have grown very little, but the top brackets have boomed enough to lift the average.
“This income polarization is a fact. It’s been going on for 15 years,” she said. “It just continues, and it really makes an impact on consumer spending.”