Consumer confidence unexpectedly sank 4.7 points to 48.5 in September, the Conference Board said -- its lowest level since February -- as Americans remain concerned about the weak job market and have become more pessimistic about the economy's longer-term outlook.
A Bloomberg survey had expected the index to fall to 52 in September from 53.2 in August. The index was at 50.4 in July, 52.9 in June, and 63.3 in May. It hit a record low of 25.3 in April 2009. (Base year, 1985=100.)
All Index Components Deteriorated in September
All four of the index's components declined in September. Regarding employment, those saying jobs are "hard to get" increased to 46.1% in September from 45.5% in August, while those claiming jobs are "plentiful" decreased to 3.8% from 4.0%.
Consumers also became more pessimistic regarding future employment opportunities. Those expecting fewer jobs in the months ahead increased to 22.7% in September from 19.6% in August, while those expecting more jobs in the months ahead dipped to 14.5% from 14.7%.
Those claiming current business conditions are "good" fell to 8.1% in September from 8.4% in August, while those who felt conditions are "bad" increased to 46.1% from 42.3%.
In addition, those expecting an improvement in business conditions over the next six months decreased to 14.9% in September from 16.9% in August, while those expecting conditions to worsen increased to 16.4% from 13.4%.
Lynn Franco, director of the Conference Board's Consumer Research Center, said consumers' outlook regarding the U.S. economy remained quite grim in September.
"September's pull-back in confidence was due to less favorable business and labor market conditions, coupled with a more pessimistic short-term outlook," Franco said, in a statement. "Overall, consumers' confidence in the state of the economy remains quite grim. And, with so few expecting conditions to improve in the near term, the pace of economic growth is not likely to pick up in the coming months."
Economists monitor the Consumer Confidence Index because, historically, rises in consumer confidence are directly correlated with increases in consumer spending. Moreover, consumer spending has accounted for about 65% to 70% of U.S. GDP. When confidence rises, and a trend forms, that most likely means good things are ahead for corporate revenue and earnings; falling confidence generally signifies the opposite.
Main Street: Still Waiting for Recovery Signs
September's consumer confidence plunge represents an unqualified setback for the economy, as confidence has trended in the wrong direction -- down -- since hitting a 2010 high of 63.3 in May. The reason? It appears that consumers' patience regarding the sluggish job market is wearing out.
Despite a manufacturing recovery, the Dow's return to the 10,000 level, higher corporate earnings, and some signs that the worst may over for the housing sector, Americans are still not acknowledging the nation's economic progress because a key variable in economic health -- the employment situation -- has not improved in tandem. Americans will likely have to see sustained gains in jobs and declines in the unemployment rate before they can become more confident about their financial situation and more optimistic about the economy.