Posted on Tue, Aug. 30, 2011
last updated: June 19, 2013 11:01:25 AM
WASHINGTON — Americans are depressed about their economic prospects but continue to spend their way through their latest downturn in sentiment, new consumer confidence data showed Tuesday.
The latest survey from the New York-based Conference Board, a business-research center, had its Consumer Confidence Index plunging almost 15 points to 44.5 in August, down from 59.2 points in July. The steep drop reflected the lowest point in consumer confidence since April 2009, a month when the economy shed 539,000 jobs amid recession and financial crisis.
Blame for the steep drop fell on Congress and Washington's political brinksmanship over the debt ceiling, which took the nation to the verge of a first-ever debt default. Having left Washington at the end of the flap, members of Congress are set to return next week for more bickering over federal finance.
As bad as Tuesday's confidence number was, there was offsetting positive news in the broader report from the Conference Board, as well as in Monday's Commerce Department report that consumer spending rose 0.8 percent in July, the best showing in five months.
"Digging deeper in the (Conference Board) report, we find that consumers' buying attitudes do not reflect their confidence levels," economists at Bank of America Merrill Lynch noted in a research report titled "Consumer Confidence: Depressed But Still Spending."
The number of consumers who indicated that they'd be purchasing automobiles in the next six months rose from 11.9 percent in July to 12.9 percent in August. And for the first time in nearly a year, more than 50 percent of those who responded to the survey of confidence indicated that they'd soon buy big appliances such as refrigerators or televisions. Almost 47 percent of respondents planned to take vacations.
"We shouldn't be seeing more consumers planning to take more vacations or purchase large items if they truly thought that another recession was on its way," Bank of America Merrill Lynch's report noted. "Like many other 'soft' indicators, we think the drop in sentiment in August was a result of the dysfunction in Washington over raising the debt ceiling and also the S&P's downgrading of the US's credit rating."
Lynn Franco concurs. The director of the Conference Board's Consumer Research Center, she said in an interview that confidence already had been falling before the surprise late-night downgrade by Standard & Poor's on Aug. 5.
"We had seen the majority of the decline was already under way," Franco said. "Some of that debt-ceiling uncertainty really did play a key role in the declines in confidence levels. And August was a very tumultuous month, between the debt-ceiling talks, the downgrade and market volatility. It remains to be seen ... whether this was just a shock and we'll get a bounce back."
That answer may depend on how Congress behaves when it returns next week. If the past year has taught anything, it's that more squabbling and uncertainty lie ahead.
After Labor Day, President Barack Obama and the Republicans who want his job are rolling out proposals for job creation. Republicans in the House of Representatives are promising an effort to create middle-class jobs by repealing "job-destroying regulations." What they list are proposed or existing rules that mostly affect big utilities and aircraft maker Boeing, not the millions of small and midsize employers across the nation.
The nation's unemployment rate remains stuck at 9.1 percent, and nearly half of the jobless have been without work for six months or longer. A special bipartisan deficit-reduction commission created in the August debt-ceiling compromise will begin its work next week with both parties far apart on how to lower the deficit.
Everything points to more gridlock and political theater, and more downers for consumer sentiment.
"I think the message is we need some stronger leadership, because this sort of uncertainty is not helping confidence levels," Franco said. "In the long term, it's going to come back to jobs. That's going to be a key component to turning confidence around, irrespective of what happens elsewhere."
After picking up earlier this year, employment growth has slowed. Some economists see Tuesday's weak confidence numbers as a harbinger for a weak government August-jobs report on Friday.
"The American outlook of business conditions, employment and personal finances has nose-dived during the month of August. In addition, many people feel that the current employment conditions have gotten worse," Chris Christopher, a senior economist with forecaster IHS Global Insight, wrote in a report Tuesday. "This is pointing to a dismal August payroll numbers report."
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