October 31st, 2013
Consumer Confidence Index Staggers after six-year High
The CCI staggers in the 4th quarter, largely due to the government shut down after reaching a six-year high in the 3rd quarter
Written by: Nina Thomas
NEW YORK- Confidence in the economy fell after a six-year high following the Government Shut down. This is hurting an already weak Consumer Confidence Index that was slowly rebuilding after six years.
Prior to the shutdown, the US economy was slowing healing. This was because of factors such as low interest rates in the month prior. Mortgage rates have already increased and are negatively impacting the CCI. Earlier this year a drop also occurred because of the payroll tax hike.
This decrease in the CCI is in conjunction with the debt-ceiling crisis. Because of the nature of the resolution from the Government Shutdown, these low numbers are expected to remain in the coming months.
CCI is a unique indicator because it is generated by the survey results of more than 5,000 households. This measures the confidence of the average American. A low CCI can hurt the market because investors are less likely to purchase equities. It also impacts consumer purchases, which can strongly impact revenues. Consumer spending accounts for 70% of all economic growth.
Darden reports a decrease in revenue this past quarter, “Fourth quarter diluted net earnings per share from continuing operations were $1.01, a 12% increase from $1.15 per diluted share in the fourth quarter last year.” This is because of customers in need of affordability who now no longer choose to dine out.
While the average for Consumer Confidence should be 90, it is reported to currently be 71.2 falling from 80.2. Economists were expecting around 75.0. Last year’s number was continuing a six-year high, the highest it has been since July 2007. This drop is unusual because the index normally only moves a point or two per month. It is still higher than the average CCI from 2007-2009 which was 54.0.
According to the Conference Board, “Consumers’ expectations, which had softened in September, decreased sharply in October. Those expecting business conditions to improve over the next six months fell to 16.0 per cent from 20.6 per cent, while those expecting business conditions to worsen increased to 17.5 per cent from 10.3 per cent…”
The CCI and stock prices show a high correlation. According to CNN Money, stocks have fell 1%.
“The collapse of confidence in government has substantially eroded already weak consumer confidence. Today’s consumer confidence rating is the fourth lowest since 1952.” Writes McInturff in “The Washington Economy.
Hiring as slowed down and more people have applied for unemployment benefits. According to Business Insider, “Consumers’ outlook for the labor market was also more pessimistic. Those anticipating more jobs in the months ahead decreased to 15.3 percent from 16.1 percent, while those anticipating fewer jobs increased to 22.7 percent from 19.1 percent.”
This fall in the CCI may negatively impact the holiday season quickly approaching as well as the economy overall in the months to come. The timing of the shutdown has also impacted this. Companies are combatting this by offering sales earlier on in the holiday season.