October 25, 2011 in Business, Nation/World

Consumer confidence at lowest since recession

Associated Press
AP Photo/Reed Saxon, File photo

In this Sept. 29, 2011 file photo, a woman and child leave a mall with purchases in Culver City, Calif. Consumers’ confidence in the economy fell in October to the lowest it’s been since 2009 when the U.S. was in the middle of a deep recession, according to a report released Tuesday, Oct. 25, 2011, by a private research group.
(Full-size photo)

Stocks falling today
NEW YORK — Stocks are falling in midday trading following poor corporate earnings and reports that a key meeting between finance ministers in Europe has been cancelled.

Manufacturing leader 3M cut its 2011 earnings forecast, and U.S. Steel warned that demand for its products could slow. Netflix Inc. plunged 35 percent after the company said it is losing customers and lowered its profit estimates for the next quarter.

The market was also pulled lower today by a report that consumer confidence plunged in October to the lowest level since March 2009.

The Dow Jones industrial average was down 123 points, or 1 percent, to 11,790 at 8:50 Pacific. The S&P 500 fell 16, or 1.3 percent, to 1,237. The Nasdaq dropped 37, or 1.4 percent, to 2,663.

NEW YORK — Americans say they feel worse about the economy than they have since the depths of the Great Recession.

Consumer confidence fell in October to the lowest since March 2009, a research group said today — an ominous sign for the economy as families begin to prepare their budgets for holiday shopping season.

The declining mood reflects the big hit that the stock market took in late summer — down almost 20 percent in one month — as well as 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 had been recovering since hitting an all-time low of 25.3 in February 2009, but has taken a turn for the worse as Americans worry about stubbornly 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.

It also came exactly two months before Christmas, with retailers preparing for the holiday shopping season, their busiest.

“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.

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 for 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 BTIG, said in a note to clients.

Still, many economists cautioned that what consumers say and what they do can be two different things.

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.

Christopher Rupkey, an economist at Bank of Tokyo-Mitsubishi UFJ, said in a note to his clients that he expects consumer confidence to “bounce back with stocks in next month’s report.”

And the survey found that people weren’t as gloomy when it came to specific buying plans, several analysts pointed out.

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 45.9 percent, up from 40.8 percent. Exactly half plan to take a vacation in the next six months, up from 46.9 percent.

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