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Consumer Confidence Index Posts Decline for Third Straight Month

Consumer Confidence Index Posts Decline for Third Straight Month

The Conference Board??™s Consumer Confidence Index dropped to 95.6 in October, the lowest in two years. During the three months ended October, the index has dropped 16.3 points. The Present Situation Index fell to 118.8 from 121.2 in September. The Expectations Index moved down to 80.1 from 85.0 in the prior month. The previously seen tight relationship between consumer confidence measures and consumer spending is not so impressive in recent years. Nevertheless, the FOMC pays close attention to these measures. In the January 3, 2001 policy statement, following a surprise reduction in the federal funds rate, the FOMC noted that "actions were taken in light of further weakening of sales and production, and in the context of lower consumer confidence, tight conditions in some segments of financial markets, and high energy prices sapping household and business purchasing power." The Conference Board??™s Consumer Confidence Index had dropped 13.9 points during the three-months ended December 2000. By the end of January 2001, the three-month change in the Consumer Confidence Index was 20.1 points. There was a bit of improvement in March 2001 when the 3-month change showed an 11.7 point reduction after a 23.4 point decline in three months ended February 2001. By the end of 2001, the FOMC had lowered the federal funds rate to 1.75% from 6.50% in December 2000 and the Consumer Confidence was down to 94.6 from 128.6 in the same period.

The recent drop in the Consumer Confidence Index is tied to the housing market crisis and soft labor market. The Jobs-Plentiful Index fell to 24.1 from 25.6 in September, the lowest since December 2005. The Job-Hard-Get Index at 22.6 is the highest in two years.

The University of Michigan Consumer Sentiment Index and the weekly ABC-News/Washington Post Consumer Comfort Index are both sending signals consistent with the Conference Board??™s measure.