U.S. consumer confidence dips unexpectedly
Despite a rising stock market, consumers continue to display a cautious stance toward the U.S. economy. Consumer confidence unexpectedly dipped in September to 53.1 from 54.5 in August, the Conference Board announced Tuesday, with the index driven lower by concern about jobs and business conditions.
A Bloomberg News survey of economists had expected the index to rise to 57.0 in September; it totaled 47.4 in July and 44.8 in June. The index hit a record low of 25.3 in February. (Base year, 1985=100.)
Lynn Franco, director of the Conference Board's Consumer Research Center, said the September data is not what retailers and other consumer-based businesses want to see as the fall begins. "While not as pessimistic as earlier this year, consumers remain quite apprehensive about the short-term outlook and their incomes. With the holiday season quickly approaching, this is not very encouraging news," Franco said in a statement.
Further, consumers' assessment of current conditions fell in September. Those claiming business conditions are "bad" increased to 46.3 percent in September from 44.6 percent in August, while those claiming business conditions are "good" inched up to 8.7 percent from 8.5 percent.
Also, consumers' assessment of the job market was less favorable than last month. Those saying jobs are "hard to get" increased to 47.0 percent in September from 44.3 percent in August, while those claiming jobs are "plentiful" decreased to 3.4 percent from 4.3 percent.
In addition, the board said consumers' short-term expectations were more pessimistic, as well. Consumers expecting business conditions to improve over the next six months decreased to 21.3 percent in September from 22.2 percent in August, while those expecting conditions to worsen dipped to 15.0 percent from 15.2 percent.
Investors should pay attention to the Consumer Confidence Index because, historically, consumer spending has accounted for about 60 to 65 percent of U.S. GDP. Moreover, rises in consumer confidence are directly correlated to increases in consumer spending. Hence, if confidence rises, and a trend forms, that most likely means good things are ahead for corporate revenue and earnings.
The Consumer Confidence Index is based on a representative sample of 5,000 households.
Economic Analysis: September showed a disappointing decline in consumer confidence. Hopefully, it's just a momentary pause, but it's understandable why consumers continue to take a reserved stance toward the economy, given the continued monthly job losses, and of course the U.S.'s high unemployment rate of 9.7 percent.
Still, considering the likelihood that the recession has bottomed, consumer confidence should resume its upward trek. If it doesn't in the months ahead, Congress, among other measures, might want to consider extending the $8,000 federal income tax credit for first-time home buyers, which is scheduled to expire later this year. The program has prompted some home purchases, providing a mild stimulus to the economy.