U.S. Consumer Confidence Index plummets, coming in below expectations
Following government shutdown, CCI drops, preparing retailers for a sluggish holiday shopping season
By Sara Lustberg
The tumultuous events surrounding the government shutdown and hitting the debt ceiling, has had a significant effect on consumer confidence in October.
According to the independent economic research organization, The Conference Board, the index of consumer confidence dropped 9 points to hit 71.2 from 80.2. This is the index’s worst performance since September of 2012.
Similar results are provoked when the economy is projected to experience a long-term expansion, and conversely such a drastic decline coincides with employment rate fluctuations. Economists speculate that buying intentions may decline even while the jobless rate declines, because of the sudden change in the need to satisfy of such a repressed demand.
The U.S. Consumer Confidence Index (CCI) is an economic indicator projected predominately by The Conference Board and the University of Michigan which surveys 5,000 households nationwide in an effort to measure the level of confidence consumers have in the performance of the economy.
Because The Conference Board also tracks consumer buying plans for items such as automobiles, homes, vacations, and major appliances, if inflation starts to rise, spending plans may increase for the short-term as consumers usually buy now to avoid having to pay higher prices later on.
“Similar declines in confidence were experienced during the payroll tax hike earlier this year, the fiscal cliff discussions in late 2012, and the government shutdown in 1995/1996. However, given the temporary nature of the current resolution, confidence is likely to remain volatile for the next several months,” verified Conference Board Director Lynn Franco in an interview with Business Insider.
Participants expecting business conditions to improve over the next six months dropped to 16 percent from 20.6 percent, but those expecting conditions to worsen jumped to from 10.3 percent from 17.5 percent, according to the report.
The unsettling effects of the government shutdown has extended far beyond workers on Capitol Hill, American citizens are now expected to be more frugal than ever before. Experts predicted a small decline but such a drastic has taken the overall population by surprise. The median forecast in a Bloomberg survey of economists called for a decrease in October to 75.
According to Bloomberg Business News, Michael Brown, an economist at Wells Fargo & Co. in Charlotte, North Carolina, who projected a reading of 71.5 stated, “What we’re seeing is more hesitancy among consumers given the fiscal policy uncertainty and the absence of confidence about future employment prospects,” he continued, “It’s very clear that consumers are going into this holiday season more restrained than last year in terms of the pace of spending.”
Several chain department stores have announced plans to introduce discounts early in the holiday season to entice shoppers. Big names like Macy’s Inc., Nordstrom Inc. and Wal-Mart Stores Inc. seem to have let go of the concern that demand will falter in a Thanksgiving-to-Christmas holiday season.
Congress’s lengthy negotiations to reopen the government and delay the infraction of the debt ceiling will not alleviate buyers’ concerns in the short term. Lawmakers allocated enough money to fund the government until January and extended the debt ceiling only until early February 2014. This will keep uncertainty at an all-time high and disperse confidence until a stable deal is constructed and announced.
Conversely consumer confidence is not predicted to change much from now until March, which means that many wary retailers are not expected to see growth in sales throughout this upcoming holiday shopping season.