Consumer confidence has declined each month since July, when it hit a six-year high, according to the University of Michigan and Thomson Reuters. The Consumer Sentiment Survey’s index declined from 85.1 in July to 77.5 in September to 75.2 in October. This was the lowest level of confidence since January’s 73.8 reading, when Americans were still in the aftermath of the fiscal cliff deal.
Frustrations with the current federal budgetary impasse, resulting in the ongoing government shutdown and pushing up against the nation’s debt ceiling, have wiped out the gains in sentiment observed earlier in the year. Note that this is a preliminary figure, with a final index number released on Friday, October 25. The October confidence numbers could be influenced one way or the other by how the budget debate evolves in the coming days.
The drop in consumer sentiment since the summer has come mostly from a diminished outlook for the economy. The expectations component’s index peaked at 77.8 in June and has dropped to 63.9 in October. The view of current economic conditions has been lowered somewhat over the past few months, but not by the same proportions as the future-oriented measures. The index for the current conditions decreased from its peak of 98.6 in July to 92.6 in September, but it actually edged slightly higher in October to 92.8.
Looking at the big picture, the drop in consumer confidence, which was also seen in a recent Gallup survey, highlights public frustrations with the political process and worries about economic growth. Previous results also focused on the slow rate of growth in the labor market, and these types of surveys have often hinged on pocketbook issues. The real test will come when we see how consumer anxieties impact spending. Unfortunately, due to the government shutdown, we did not receive retail sales data this morning which might have given us some clues about Americans purchasing patterns.
Chad Moutray is the chief economist, National Association of Manufacturers.