Consumer confidence dropped to a near-decade low in March as war created uncertainty about economic prospects, according to the University’s Surveys of Consumers released Friday.
The final results of the Index of Consumer Sentiment fell to 77.6 in March from 79.9 in February – its lowest level since September 1993. Although it gave up more than two points, the final data is better than the mid-month preliminary’s, which stood at 75.0.
Consumers felt more optimistic about the economy during the war’s first week when it was expected to be a short war said Business School Prof. Richard Sloan said that during the first week of the war with Iraq when people expected a short war, as uncertainty cleared. But, experts said, the April number would better reflect how a longer-than-expected war with more casualties and higher expenses impacts consumers and their spending, which fuels two-thirds of the whole U.S. economy.
“There is a delay from the release of the number to the actual time that the data was collected,” Sloan said. “On the first day of war, the stock market rose and the data might have been collected during that week.”
Sloan said the prolonged war is creating more uncertainty that will reduce spending of consumers and businesses. If the war turns out to be a tough one, consumer confidence will sink further in the coming months.
Although the progress and development of the war has affected the mood of consumers, Surveys Director Richard Curtin said in a written staement that “the successful completion of the war will not be sufficient to reestablish confidence.”
“The full restoration of consumer optimism will depend on a sustained revival in job and wage prospects,” Curtin said.
With the current 5.8 percent unemployment rate and the weakness in the airline industry – which has been struck by reduced business travel due to war and the mysterious respiratory disease, which has infected hundreds of people worldwide in Asia – the outlook of the job market is still grim.
“Consumers expected job losses to continue to mount during the months ahead, as they expected the unemployment rate to move toward 6.25 percent by mid-year,” Curtin said.
Sloan said there will be more job lay-offs in the future because consumers are reluctant to provide a catalyst to the economy by spending.
“People buckle down and stop spending money, then businesses have to lay people off and this gets into a negative cycle,” Sloan added.
The Index of Consumer Expectations – another part of the Surveys – moved less than a point to 69.6 in March, but is 25 percent below last year’s level. The low points of the expectation index mean that consumers are still worried and unsure about the future state of the economy.
The Surveys of Consumers, which is accessible only to paid subscribers, is conducted by the University’s Institute for Social Research.
The preliminary and final results are each based on approximately 250 telephone interviews with Americans nationwide in the first and second half of each month.