NEWS AND COMMENTARY
October 31, 2000
Consumer Confidence Drops Sharply
By The Associated Press
Halloween Finds Consumers Fearful Of The Future ... Weiss comments
NEW YORK - Consumer confidence fell sharply in October to its lowest level in a year, a potentially worrisome sign for the approaching holiday retail season.
The New York-based Conference Board said its Consumer Confidence Index now stands at 135.2, a steep drop from the revised 142.5 reported in September and the record high of 144.7 registered in May and January.
The Conference Board index, based on a monthly survey of some 5,000 U.S. households, is closely watched because consumer spending accounts for about two-thirds of the nation's economic activity. The index compares results to its base year, 1985, when it stood at 100.
The October drop was "triggered by a cooling economy and apprehension regarding soaring oil prices and volatility in the financial markets," said Lynn Franco, director of the Conference Board's Consumer Research Center. The last time it was this low was in October 1999, when it stood at 130.5.
Consumers were much less optimistic about the economy than just a month earlier, when the index rose on general optimism about the nation's business climate. But the optimism waned in October, with more consumers expressing doubts about business conditions and their ability to find new jobs.
Just 16.5% of people polled in the newest survey expect an improvement in business conditions over the next six months, down from 19% in September. The percentage anticipating conditions to worsen rose from 5.6% to 7.2%.
In addition, 13.1% of consumers surveyed say they expect fewer job openings, up from 10.9% last month.
In another sign of dimming expectations, just 24.2% expect their incomes to rise, a drop from the 28.1% who shared that viewpoint in September.
Rising oil prices and a volatile stock market seem to have finally changed the attitude of consumers. Over the past few years, the "wealth effect" caused by a soaring stock market, low inflation, and healthy job market had sent consumers into the buying frenzy that propped up company earnings. But rising fuel costs have had a twofold effect on consumer confidence.
High oil prices (as well as a weak euro and slower sales growth) have eaten into company profits, wreaking havoc on the stock market. Uncertainty in the stocks casts a cloud over the job market, the value of once-juicy stock options, and the return on investments.
Plus, skyrocketing prices for gas and home heating oil have put a dent in household piggy banks, as consumers dip into savings to pay the bills for the new car, house, or boat that they splurged on at the height of the bull market.
Don't be surprised if consumer confidence edges up in the next few months as the market receives its traditional bounce from the holiday season. But company earnings, fuel costs, and inflation show no signs of easing through the winter months and into the next year. After that, consumer confidence, along with the stock market, will plunge.