Just when it seemed as though one metric after the other was pointing to a strengthening economy, and estimates for the recently concluded third-quarter GDP growth rate were climbing to near 3%, the Conference Board has rained on the parade. That is because within the past hour that private New York-based research group has reported that its Consumer Confidence survey had plunged in October to 39.8 (1985=100), from 46.4 in September. The initial estimate for last month had been 45.4. Meanwhile, the forecast result for this latest month had been 46.5.
Not only did the aggregate number come in well below expectations, but several components within the Index did poorly. Specifically, the Present Situation Index tumbled to 26.3 from 33.3 in September. Also, the Expectations Index, which look out six months into the future, declined from September's reading of 55.1 to 48.7 in the current month.
According to Lynn Franco, the Director of the Conference Board Consumer Research Center ``Consumer confidence is now back to levels last seen during the 2008-2009 recession.'' This is a most discouraging report to those who had expected the economy to enter a stronger period of growth. Our sense is that GDP data for the recently ended third quarter will show a growth rate of between 2.5% and 3.0%. However, we think this rate is not sustainable, and that it might halve in the current period, which would bring it back down to the level of the second quarter when growth was just 1.3%. This latest report on consumer confidence only underscores the dimming outlook as we proceed through the final weeks of the year.
Meanwhile, those claiming that business conditions are bad increased last month to 43.7% from 40.5% in September. Those claiming that business conditions were good decreased from 12.1% to 11.0% this month.
Largely behind this somber consumer view, we believe, is the difficulty in securing employment for many Americans. Indeed almost half of those surveyed indicated that jobs were hard to get, while less than five-percent said employment opportunities are plentiful. Overall, it is the difficulty in getting a job, the low level of personal income growth, and the poor condition of the housing market that are likely behind the present low level of consumer confidence.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.