Consumer confidence rose last month despite concerns about a possible war with Iraq, slow improvements in the job market and the restarting of a North Korean nuclear plan, according to the University’s Index of Consumer Sentiment.
The index rose to 86.7 points in December from 84.2 in November, indicating consumers are more optimistic about the economy than in the previous month.
These numbers are still far below the recent high of 96.9 recorded in May 2002.
Although the survey showed an improvement in consumer confidence, consumers are still cautious with their spending, according to reports from the Bank of Tokyo-Mitsubishi and UBS Warburg. Retail sales indicate that this was the worst holiday shopping season in almost 30 years.
“For most consumers, they are now in a hunker down mood,” Business Prof. Joel Slemrod said.
“The situation in Iraq and in North Korea have a lot of uncertainty to the future for both … is one reason that both consumers and businesses are adopting a certain wait-and-see attitude and why consumers are looking to build their assets rather than to spend”.
Slemrod said the proposal to end personal income taxes on corporate dividends, a centerpiece of the economic plan announced by President Bush yesterday, is not likely to stimulate much additional consumer spending.
“Taxes are reduced, but the majority of consumers are unlikely to go out to spend that money and they are more likely going to save it or pay down their debts,” he added.
LSA sophomore Joe Galante is among those who feel optimistic about the economy but said he spent less during the holiday season than in years past.
“I was limited by my parents’ budget and did not spend much during Christmas.”
Another survey conducted by the University, the Index of Consumer Expectations, a component of the Index of Leading Economic Indicators, which still has not regained the entire decline from the 2002 peak of 92.7, also rose to 80.8 in December from 78.5 in the previous month.
The survey, which is accessible only to paying subscribers, is conducted by the University.
The results are based on about 500 telephone interviews with Americans nationwide.