Consumer Confidence Declines In October

Consumer confidence declined in October 2013 according to the influential Thomson Reuters/University of Michigan Survey of Consumers, as consumers became convinced that the Federal shutdown as well as other restrictions on government spending would slow the overall pace of economic growth over the next several months. 

Overall, the Sentiment Index fell to its lowest level since the fiscal cliff crisis in late 2012, and the Expectations Index is now at its lowest level since late 2011, the October survey says. "Perhaps the most significant finding is that consumers have increasingly moved toward the view that the government has become the primary obstacle to more robust economic growth."

When asked to describe in their own words what they had heard about recent economic developments, the number of consumers that negatively mentioned the federal government in October was the highest in the more than half-century history of the surveys.

Personal Financial Prospects Weaken: Just 2 percent of all households expected their finances to improve in the year ahead, with half of all families expecting no income increase. Inflation-adjusted income prospects improved slightly from last month, largely due to a decline in the expected inflation rate. Offsetting heightened concerns about prospects for wages and jobs, consumers reported gains in their household wealth, including rising values of stocks and homes, according to the Thompson Reuters survey.

Slow Job Growth Expected: The near term outlook for the national economy suffered most from the DC stalemate, with unfavorable economic conditions expected by 61 percent in October, up from 50 percent in September. "A slowing pace of economic growth meant that consumers anticipated fewer new jobs to be created, reversing the gains recorded a year ago. Indeed, in last October’s survey consumers held the most optimistic expectations for job growth so far in this expansion. In the latest survey, consumers expected the national unemployment rate to edge upward during the year ahead."

Consumer Sentiment Index: The Sentiment Index was 73.2 in October 2013, down from 77.5 in September and last October’s 82.6. Most of the weakness was in the Expectations Index, which fell to 62.5 in October from 67.8 in September and last year’s 79.0. The Current Conditions Index was 89.9 in October, down from 92.6 in September, but just above last October’s 88.1.

Richard T. Curtin,  Director, Thomson Reuters/University of Michigan Surveys of Consumers, said: “This was the third time in the past three years that negative references to the government’s impact on the economy set another half-century peak level. Indeed, after each repeated advance in optimism during the past three years, a revival of the DC follies promptly reversed the gain. It is hard to imagine how economic uncertainty will decline in the next few months since nothing was settled, only postponed; nonetheless, the battered consumer will heave a sigh of relief during the brief stoppage between rounds in the DC fight. Although pushed to the back-burner, concerns about job prospects have significantly worsened during the past year.”

The Survey of Consumers is a rotating panel survey based on a nation ally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone.  

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