Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=157914
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Consumer Confidence Feb

Alexa Harrison/MEDILL

The East North Central Region, which includes Illinois, also fell sharply Tuesday to 41 from 52.8.


Consumer confidence declines unexpectedly, stocks fall as result

by Alexa Harrison
Feb 23, 2010


The Consumer Confidence Index results for February fell to 46.0 from 56.5 in January. Economists surveyed by Bloomberg LP were expecting a much higher reading of 55. The index had increased for three consecutive months prior to Tuesday’s release.

Guy LeBas, an economist with Janney Montgomery Scott LLC in Philadelphia, said the drop is the biggest since the debt crisis of September and October of 2008, when the index fell to 38.8 from 61.4.

“Consumer spending is such a critical part of sustaining the recovery,” he said. “Now that we’ve dipped below that dividing line of optimism and pessimism—the 50 mark—it’s coming at a particularly bad time.”

Adam York, an economist with Wells Fargo Securities LLC in Charlotte, N.C., agrees: “The economy is still in a fairly weak position, but this was a sharp reversal of where we had been.”

In the East North Central region, which includes Illinois, confidence fell in February to 41 from 52.8. The Present Situation Index, a sub-index which measures consumer sentiment about current economic conditions, substantially decreased to 8.7 in February from 17.9 in January, the lowest since March.

Josh McWilliams, a 25-year-old Chicago resident, fits the bill of a tight-fisted consumer. He said he is unwilling to spend much during this time because of student loans.

“A lot of the banks aren’t willing to negotiate on student loans,” he said. “If you can’t pay they don’t really care.”

The Conference Board, a not-for-profit research organization, releases the index monthly. The measure is based on the Consumer Confidence Survey, conducted by research company Taylor Nelson Sofres. The survey samples 5,000 homes in the U.S. every month. All national figures are seasonally adjusted and the base year is 1985, which equals 100.

Nationally, the Present Situation Index fell to 19.4 in February from 25.2 in January. The lowest level reported was 17.5 in February 1983. The Expectations Index, another sub-index that measures what consumers expect from the economy in the coming months, also fell to 63.8 from 77.3.

“Concerns about current business conditions and the job market pushed the Present Situation Index down to its lowest level in 27 years,” said Lynn Franco, director of the Conference Board consumer research center in a statement.

Consumer feelings on current-day conditions changed dramatically in February as well. The number of consumers who labeled conditions as “good” fell to 6.2 percent from 8.5 percent, while those who thought they were “bad” increased to 46.3 percent from 44.7 percent.

The numbers show that consumers have become more pessimistic about the labor market outlook. Almost half of those surveyed believe that jobs are “hard to get,” and less than 4 percent believe “jobs are plentiful.”

Consumers’ short-term outlook also deteriorated. The number who thought business conditions would improve over the next six months decreased to 16.7 percent from 20.7 percent.

Contrary to the survey results, Chicago resident Jeb Altonagna, 34, said he is spending moderately, but renovating his home and recently bought custom-made shirts.

“I’m not by all means penny-pinching,” he said, “Instead of going out and getting a second mortgage [I’m] doing it in steps.