Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=102181
Story Retrieval Date: 7/31/2014 8:30:54 AM CST
Meaghan M. Norman/MEDILL
The consumer confidence index dropped dramatically in October to an all-time low of 38.0, down from 61.4 in September. Economists surveyed by Dow Jones expected a reading of 51.5.
A separate index measuring consumers’ outlook of the economy over the next six months fell to 35.5 from 61.5 last month. The current conditions index is equally grim, dropping to 41.9 from 61.1.
“The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence,” wrote Lynn Franco, director of The Conference Board Consumer Research Center, the private organization that surveys 5,000 households monthly. The 23.4-point decline in the index “is the third largest in the history of the series, and the lowest reading on record.”
The Conference Board adjusted its monthly forecast from a slow-growth environment to a contraction of the U.S. economy.
Senior Economist Adolfo Laurenti at Mesirow Financial Holdings Inc. cautioned that while it's important to note that consumer sentiment is very low at the moment, it is not necessarily indicative of what people will do with their money or what will happen with the economy. There is often a disconnect between what people said when surveyed and what actually happens, Laurent said.
“There are striking cases like Sept. 11 where people were feeling bad and confidence was low and [the index] came down to 84, which was low at the time, and still those months were months where consumer spending was pretty strong,” he said.
Martin LaBranche, 24, of Chicago, said current news is a constant reminder of hard economic times. “I feel strapped like most people, but the bad thing is that it’s affecting me,” LaBranche said. “I’m sure it’s affecting other people in my community more than me but I have a full-time job and I still feel the effects.”
The short-term future of the job market is also grim. The Conference Board survey reported that the number of people who are expecting fewer jobs in the months ahead jumped to 41.5 percent from 26.9 percent. Those anticipating an increase in income fell to 10.8 percent from 15.1 percent.
While this October index is the lowest, Laurenti said that he is hesitant to consider this the worst financial state of the economy.
“The economy is not worse than it was in the 1970s, even though the index wasn't as low as it is now," he said. "We had much higher unemployment and much worse inflation then. In December of 1974 the reading dropped to 43,” he said.
In this current crisis, many people still have their jobs even though there is less disposable income.
“People are trying to rebuild their savings and they want to be ready if something goes wrong,” said Laurenti.
That may be the case for most people but for Jason, a 34-year-old who lives and works in Chicago, sometimes the most difficult part of preparing for the future is saving.
“You save in the summer to pay for heat and utilities in the winter, then you have the holidays” said Jason, who declined to give his last name. “Meanwhile you always have to save to pay for gas. You try to save but the bills keep increasing.”
Laurenti said the dwindling consumer confidence may be due in part to the government's injecting fear into citizens as well as the collapse of the housing market.
“I understand the tactic to scare the congressmen but sometimes the tactics that work on the CEO of Goldman Sachs don’t necessarily work if you are the Secretary of the Treasury,” said Laurenti. “It instilled a sense of fear in the market and in the people at-large. By emphasizing how bleak it is they have contributed to a reverse of confidence.”