In the largest decline since 1990, U.S. consumer confidence in September sank almost 19 points to its lowest level in nearly two years. The Conference Board reported that the Consumer Confidence Index plunged to 86.6 in September, down from 105.5 in August.
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“Hurricane Katrina, coupled with soaring gasoline prices and a less optimistic job outlook, has pushed consumer confidence to its lowest level in nearly two years (81.7 in October 2003) and created a degree of uncertainty and concern about the short-term future,” Lynn Franco, Director of the Conference Board Consumer Research Center said in a statement announcing the findings.
Economists generally place little importance on consumer confidence fluctuations because they don’t often correlate to actual spending behaviors Reuters reports.
“A drop of this magnitude is concerning,” Keith Hembre, chief economist at U.S. Bancorp Asset Management in Minneapolis told Reuters.
If recent hurricanes do not have a long-term effect on the economy the New York Times reports that consumer confidence should rebound in a few months if it follows historical trends.
“Historically, shocks have had a short-term impact on consumer confidence, especially on consumers’ expectations,” Franco’s statement continued. “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. As rebuilding efforts take hold and job growth gains momentum, consumers’ confidence should rebound and return to more positive levels by year-end or early 2006.”
Consumers’ outlook for the next six months, however, is considerably pessimistic. Nearly 20 percent expect business conditions to worsen. Twenty-five percent of those surveyed also expect fewer jobs to be available in coming months. In addition, 10.8 percent of those surveyed anticipate their incomes will decrease.