Overblown

28 September 2005



US Consumer Confidence Has Biggest Drop in 15 Years

The US consumer has kept the world economy afloat for months, even years. So when the confidence of that Yank with the bucks dips, people everywhere panic. The latest monthly survey from the private Conference Board shows the biggest fall month-on-month since Saddam Hussein marched his troops into Kuwait. But one should remember that a single data point doesn’t make a trend.

In announcing the decline in the Conference Board’s Consumer Confidence Index from 105.6 in August to 86.6 in September, Lynn Franco, director of the Conference Board's Consumer Research Center, said, “Hurricane Katrina, coupled with soaring gasoline prices and a less optimistic job outlook, has . . . created a degree of uncertainty and concern about the short-term future.” In other words, things look pretty lousy for the average American’s spending prospects.

But Ms. Franco also reminded, “Historically, shocks have had a short-term impact on consumer confidence, especially on consumers' expectations. Fuel prices remain high, though they have retreated in recent days, and when combined with a weaker job market outlook, will likely curb both confidence and spending for the short-run.”

But then, the news has been pretty rotten, and the only people who are feeling upbeat are those without TV, radio and newspapers. And since a lot of them were displaced by one or more hurricane, that bunch isn’t as big as it often is. What it will take to get consumer confidence up, quite simply, is some good news. If Mr. Greenspan would simply quit raising interest rates, that might be enough.

And it is best to remember that this index isn’t really a perfect indicator – good but not perfect. After all, right after Bush the Elder won the 1991 Kuwait War, consumer confidence rose 22.5 points on this index, and 1991 wasn’t much of a year for the US economy. Indeed, Bill Clinton won the presidency reminding everyone “It’s the economy, stupid.” The latest figure is grounds for concern, but it’s a bit early to presume a miserable 2006.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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