Consumer Confidence Crumbles in February

Consumer confidence unexpectedly plummeted in the February reading, dropping 10 points to 46, as Americans' evaluation of the job market turned more pessimistic, The Conference Board announced Tuesday.

A Bloomberg News economists surveyed had expected the index to dip to 55 this month after jumping to a revised 56.5 in January. The index was at 53.6 in December and 50.6 in November. It hit a record low of 25.3 in February 2009. (Base year of 1985 = 100.)Consumer jitters are also showing up in The Conference Board's other confidence measures: The present situation index decreased to 19.4 in February from 25.2 in January, and the expectations index declined to 63.8 from 77.3 last month.

Job Market Woes Weigh on Attitudes

Lynn Franco, director of the board's Consumer Research Center, said job-market concerns and uncertain conditions for businesses are weighing on consumers. "Consumer Confidence, which had been improving over the past few months, declined sharply in February. Concerns about current business conditions and the job market pushed the Present Situation Index down to its lowest level in 27 years," Franco said in a statement. "Consumers also remain extremely pessimistic about their income prospects. This combination of earnings and job anxieties is likely to continue to curb spending."

Further, consumers' assessment of current conditions worsened in February. Those declaring business conditions are "bad" increased to 46.3% in February from 44.7% in January, while those saying business conditions are "'good" decreased to 6.2% from 8.5%.

Consumers' assessment of the job market also turned more pessimistic In February. Those saying jobs are "hard to get" increased to 47.7% in February from 46.5% in January, while those claiming jobs are "plentiful" decreased to 3.6% from 4.4%.

In addition, the board said consumers' short-term expectations also took a negative turn. Consumers expecting business conditions to improve over the next six months decreased to 16.7% in February from 20.7% in January, while those expecting conditions to worsen increased to 15.3% from 12.7%. Further, those expecting jobs to get scarcer in the months ahead increased to 24.6% from 18.9%. And those expecting more jobs to become available declined to 13.4% from 15.8%.

Trend-Breaker or Just a Momentary Drop?

The Consumer Confidence Index carries a lot of weight with investors (witness today's midmorning about-face from a modest rise to a drop of around 75 points on the Dow) because consumer spending has historically accounted for about 60% to 65% of U.S. GDP. Moreover, rises in consumer confidence are directly correlated with 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. And vice versa.

The bottom line regarding the February confidence data? Americans remain concerned about the country's high unemployment rate and the lack of job openings. Historically, job-market concerns have caused consumers to delay major purchases (such as buying a new car) and other key financial decisions.

That said, consumer confidence had been moving incrementally higher recently, hence investors must keep February's one-month reading in perspective. March's data will help determine if February was a trend-breaker or a momentary drop. February's job-creation data will undoubtedly have a lot to say about the March consumer confidence metric.
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