Recession and Finances Eroding Consumer Confidence

August 30, 2011 (Chris Moore)

Consumer’s concerns about a renewed recession and the fear of worsening finances caused consumer confidence to plunge in August according to the latest Surveys of Consumers by Reuters/University of Michigan.

Pessimism was the prevailing wind in this month’s report as consumers became increasingly convinced that a recession was likely to occur in the future and consumer’s view of the government’s role in the economy and its economic policies have never been rated so negatively in the history of the surveys.

The majority of the households in the survey reported worsening finances, with no income gains anticipated, and an expectation that unemployment rates would rise in the coming year.

That was also reflected in consumer attitudes towards buying plans for household durables with the primary reasons that consumers gave for postponing purchases being job and income uncertainty.

One-in-four consumers mentioned income uncertainty as their primary reason for postponing a vehicle purchase. Consumers are becoming more defensive, favoring cutbacks rather using savings or securing new debt in order to make large purchases.

All three indices that make up the Index of Leading Economic Indicators registered large declines in August.

The Consumer Sentiment Index fell 12.6 percent to 55.7 in August, down from 63.7 in July and is down 19.2 percent from 68.9 in August of last year.

The Consumer Expectations Index declined to a level of 47.4 in August, down 15.4 percent from a level of 56.0 in July and down 24.6 percent from a level of 62.9 in August 2010.

The Current Conditions Index declined 9.4 percent to 68.7 in August, down from 75.8 in July and is down 12.3 percent from 78.3 in August of last year.

Richard Curtin, Surveys of Consumers chief economist said, “The recent surge in pessimism was due to lost confidence in the ability of the government to enact policies that would counteract the growing threat of a renewed recession. Consumers have shifted from being optimistic about the potential impact of monetary and fiscal policies to a sense of despair and pessimism about the role of the government. The only more common expectation than the government plays a positive role in promoting economic growth is the expectation that government can be a potent and successful force. That presumed effectiveness has been lost. The result is that consumers have become more cautious spenders.”

Tags: Surveys of Consumers, Reuters/University of Michigan, consumers, economic slowdown, finances, recession, financial expectations

Source:
Reuters/University of Michigan