Just in Time for the Holidays, a Bad Economic Mood

NEW YORK (AP) - Americans say they feel worse about the economy than they have since the depths of the Great Recession. And it's a bad time for a bad mood because households are starting to make their holiday budgets.

It might not be all doom and gloom, though. Sometimes what people say about the economy and how they behave are two different things.

Consumer confidence fell in October to the lowest since March 2009, reflecting the big hit that the stock market took this summer and frustration with an economic recovery that doesn't really feel like one.

The Conference Board, a private research group, said its index of consumer sentiment came in at 39.8, down about six points from September and seven shy of what economists were expecting.

The reading is still well above where the index stood two and a half years ago, at 26.9. But it's not even within shouting distance of 90, what it takes to signal that the economy is on solid footing.

Economists watch consumer confidence closely because consumer spending accounts for about 70 percent of U.S. economic activity. The index measures how shoppers feel about business conditions, the job market and the next six months.

It came exactly two months before Christmas, with retailers preparing for the holiday shopping season, their busiest. Almost twice as many people now expect a pay cut over the next six months as expect a raise.

"If people think their income is declining, they're not going to be inclined to spend," said Jacob Oubina, an economist at RBC Capital Markets.

Economists point out that consumer confidence is not as simple as a single number, though. The feelings people express about the economy do not always track how they actually spend money.

In September, for example, despite feeling bad about the economy, people increased their spending on retail goods by the most since March. More people bought new cars, a purchase people typically make when they are confident in their finances.

The percentage of Americans who plan to buy a major appliance in the next six months, such as a television or washing machine, rose to 46 percent, up from 41 percent. Exactly half plan to take a vacation in the next six months, up from 47 percent.

Marc Rosenberg, CEO of SkyBluePink Concepts, a toy marketing company, said he looks for broader trends in the monthly consumer confidence numbers but doesn't pay attention to the monthly changes.

"I think it is nice background music," he said.

It's still not a very happy tune. Jessica Jarmon was laid off from her job in social work in March. For the past three months, she has worked a temp job in the same industry, but that ended last week.

She has a job interview Wednesday morning, but she said it's hard to tell whether the economy is getting better or not.

"You hear about one company creating 16,000 jobs, and then you hear about another company laying off 10,000 jobs. Maybe, at best, we are just breaking even," said Jarmon, who lives in Philadelphia.

Mark Vitner, senior U.S. economist at Wells Fargo, said he will probably trim his forecast for holiday revenue in the retail industry based on Tuesday's figure.

Vitner said the persistent gloomy headlines about the economy may lead people to say they feel worse about things than their own situations would suggest. They might have a good job and stable finances, for example, but still report feeling sour.

But the decline in confidence is "too significant to get away from it," he said. "Consumers are losing hope that strong growth is around the corner."
Higher earners are also starting to lose confidence, a bad sign because they account for a disproportionate amount of spending. The confidence index for people making more than $50,000 has dropped six months in a row.

"The upper income brackets have weathered the recession and recovery better than most citizens, and declining confidence among this group is certainly unwelcome," Dan Greenhaus, an economist at the brokerage BTIG, said in a note to clients.

Consumer confidence had been recovering fitfully since hitting an all-time low of 25.3 in February 2009, but has taken a turn for the worse as Americans worry about high unemployment, rising prices for food and clothes and an overall weak economy.

The index is based on a survey conducted Oct. 1-13 of about 500 randomly selected people nationwide.
It was three days after the survey got under way, on Oct. 4, that the stock market began a remarkable rally. The Dow Jones industrial average gained 12 percent in three weeks, from the Oct. 3 close through Monday's trading.

The Dow fell about 1 percent Tuesday, not just because of consumer confidence but because investors are worried about corporate earnings and about whether Europe can find a solution to its crippling debt problem.

The last time consumer confidence was this weak was also the turning point for the stock market in its severe downturn during the recession. It was in March 2009 that the Dow bottomed out at 6,547.

The survey found that a growing number of Americans are worried about making less money over the next six months. The proportion of people expecting a pay cut is about nine percentage points higher than those who expect a raise, the biggest gap since April 2009, Oubina said.


Rugaber reported from Washington. Associated Press Writer Joseph Pisani contributed to this report from New York.

Increase your money and finance knowledge from home

Economics 101

Intro to economics. But fun.

View Course »

Asset Allocation

Learn the most important step in structuring an investment portfolio.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Economy will not improve not matter how much money is spent by our gov't, without consumer confidence nothing matters

October 26 2011 at 3:22 PM Report abuse rate up rate down Reply

It's all about jobs..jobs...jobs. With a true unemployment rate in the the low 20's% many people will stick with necessity over want. I would think a good portion of the September uptick in spending might be correlated with back to school purchases. Washington needs to stop the blame game and start working together.

October 26 2011 at 8:18 AM Report abuse rate up rate down Reply

You can't just blame the Democrats for this mess. It was the Republicans fault as well as the Democrats. Both parties are full of out of touch with Main Street Buffoons.

October 26 2011 at 7:42 AM Report abuse -1 rate up rate down Reply

Anyone surprised by this 75% of Americans now believe that America is being lead down wrong path by Obama and the socialist left. They Also believe that the Wall Street protesters are the heart and soul of the Democrat party and that heart is evil and broken. The only way to fix this t Mess created buy the left after they took over congress in 2006 5 years ago, is to get rid of the Democrats in the Senate and the self proclaimed Messiah in the White House

October 25 2011 at 8:45 PM Report abuse rate up rate down Reply

incomprehensible debt will do that to you.

October 25 2011 at 3:52 PM Report abuse +1 rate up rate down Reply