As the drumbeat of war intensifies and the economy shows no signs of recovering, the University’s Index of Consumer Sentiment released its report on Friday showing a drop in consumer confidence for January.
The index fell to 82.4 in January from 86.7, indicating consumers are less confident about the current state of economy than the previous month. Furthermore, the index has fallen far below last year’s level, when it stood at 93.0 in January 2002.
“While a war with Iraq is not the only source of concern, it is likely that in the months ahead the war will dominate changes in consumer confidence,” said Richard Curtin, director of the University’s Surveys of Consumers, in a written statement.
The possibility of a war has created uncertainty in the nation over the last couple weeks, when hopes that the conflict with Iraq could be solved through peaceful means were dashed.
“It’s hard to know exactly what the effect of the war will be,” UBS Warburg economist Jim O’Sullivan said. Warfare has hurt the stock market in the last couple of weeks, and presumably directly or indirectly affect sentiment as well.”
While the interest rate is at a 40-year low, experts say the uncertainties created by the possible war with Iraq caused businesses to spend less in January, thus making the consumer feel vulnerable about their jobs.
“There are not many jobs out there. I think the bad economy is forcing a lot of people to go to graduate school because it is definitely hard to find jobs at this time,” Kinesiology senior Kate Kullgren said.
Kullgren added she is now trying to secure a job and said the economy situation has slowed down the process.
“While consumers expect the economy to stagger forward, they think the pace of growth will be too slow to keep the unemployment rate from rising,” Curtin said.
Last week, the U.S. Commerce Department reported that the real gross domestic product – the broadest measure of national output, adjusted for inflation – only crawled upward by 0.7 percent in the fourth quarter of 2002. Although the whole year’s growth was 2.4 percent – which was much better than the 0.3 percent growth in 2001 – it was still historically low for the world’s largest economy.
Another part of the survey, the Index of Consumer Expectations, a component of the Index of Leading Economic Indicators, also declined to 72.8 in January from 80.8 in December. This indicates that consumers are still skeptical about the unclear state of the economy ahead of them.
The Surveys of Consumers, which is accessible only to paying subscribers, is conducted by the University Institute for Social Research.
The final results are based on about 500 telephone interviews with Americans nationwide and are announced monthly.