Consumer Confidence Tanked During Debt Ceiling Debacle

The ugly fight in Washington that shut down the government and nearly failed to raise the debt limit took a serious toll on consumer confidence.

The Conference Board's monthly Consumer Confidence Index was released Tuesday, and it showed that people's confidence in the U.S. economy dipped sharply in October. In one month, the confidence index fell from 80.2 to 71.2, and the nonprofit that publishes the survey pointed the finger at the budget crisis.

"Consumer confidence deteriorated considerably as the federal government shutdown and debt-ceiling crisis took a particularly large toll on consumers' expectations," wrote Lynn Franco, Director of Economic Indicators at The Conference Board. Franco went on to note that similar dips have been observed last year during the "fiscal cliff" debate and during the last government shutdown in the mid-1990s.

The Conference Board isn't alone in its assessment that the shutdown hurt consumer confidence: Last week's Thomson Reuters/University of Michigan consumer confidence survey found that confidence in the economy had reached its lowest ebb since December 2012.

%VIRTUAL-article-sponsoredlinks%Consumer confidence is a closely watched economic indicator, and the troublesome reports come just a month before the official kick-off of the holiday shopping season. And that could spell trouble for the retail industry and the economy as a whole.

"With the holiday shopping season around the corner, consumers have been shaken by all the political turmoil in Washington," wrote IHS Global Insights economist Chris Christopher in an email. "Looking ahead, we expect consumer confidence to gain traction in the upcoming months; however, confidence falls faster than it rises."

There is a potential silver lining for consumers, though -- as Christopher points out, retailers will be discounting heavily to convince shoppers to shake off their worries and get to the mall.

Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.