Consumer confidence nosedived in March to the lowest level since the start of the Iraq war, according to The Conference Board Consumer Confidence Index released Tuesday, and the portion of the index that looks at consumers’ short-term expectations was at its lowest since the oil embargo and Watergate scandals.
The Consumer Confidence Index is based on a monthly survey of 5,000 U.S. households. Its components measure present conditions and short-term expectations for business conditions, the job market, and income prospects. The Index now stands at 64.5 (1985=100), down from 76.4 in February, The Conference Board reports. The Expectations Index declined to 47.9 from 58.0. The Present Situation Index decreased to 89.2 from 104.0 in February.
While the nation’s economy hasn’t met all the criteria to declare a recession, the newest numbers in combination with other leading indicators are “definitely a red flag,” says Lynn Franco, director of the Consumer Research Center of The Conference Board. “Consumers are obviously very pessimistic; we’ve already seen it on spending. We’ve seen deterioration from Q4 (2007) into Q1 (2008) and it will continue.”
While the index was expected to drop from February to March, the amount of the decline was unexpected, says Nigel Gault, chief U.S. economist for Global Insight. The indication is that consumers have a “very poor outlook for the immediate future for the economy, their finances, and the job market,” he says.
There’s a long list of reasons – high debt level, low savings, declining employment and real wages, tightened access to credit and declining home prices -- why consumers feel pessimistic, Gault says.
“It’s difficult to think of anything consumers should be feeling good about,” Gault says. “The only plus is that in a couple of months, they’ll start receiving rebate checks from the government, but it’s a one-time injection. Consumers know if they go spend that money, it’s gone. There’s no more. It doesn’t fix the underlying problems.”
One possible factor in the sharp drop, Franco says, was the timing of the survey, which closed on the evening of Tuesday, March 18. That coincided with a drop in the stock market, a sharp increase in gas prices, the news that the Bear Stearns investment bank was teetering on the brink of bankruptcy and its subsequent sale to J.P. Morgan Chase and Co.
Since then, the stock market has improved, there’s been some easing in access to credit, and mortgage rates have improved, “so maybe it’s not quite as black as when this survey was concluded,” Gault notes.
Also, the National Association of Realtors reported on Monday that the median price for existing single-family homes fell by 8.7 percent compared to February 2007, to $193,900. Lower housing prices, along with a significant slowdown in new-housing starts, suggest the housing decline may be approaching bottom.
“That’s what we need to clear the inventory,” Gault says.
Click here to review the full Consumer Confidence Index news release.