Consumers had a tough time last month as uncertainties created by a heightened terror attack alert, possible war with Iraq and skyrocketing oil prices worsened the already gloomy economy. This pessimistic outlook was reflected by the University’s Consumer Sentiment Index, which dropped to a new nine-year low in February.
According to final results released Friday, the index fell to 79.9 – just two points away from its lowest level, which occurred in September of 1993.
The decline indicated that consumers feel far less optimistic about the economy than a year ago, when it stood at 90.7.
The drop pushed the index halfway between its all-time peak of 112.0 and its all-time low of 51.7.
“Its middling level is sufficient to promote widespread uncertainty,” Richard Curtin, director of the University’s Surveys of Consumers, said in a written statement.
According to economists, consumer spending fuels two-thirds of the United States’ economy. So if consumer confidence remains bleak, recovery of the economy would be hampered.
But Curtin said even if the index’s current level does not spur rapid economic growth, the level is still “high enough to avoid a recessionary downturn.”
According to Friday’s report from the U.S. Commerce Department, the economy fared better in 2002’s last quarter than previously expected. The economy grew at a revised annual rate of 1.4 percent over last year’s fourth quarter, doubling from January’s estimated number – but still remained far below the 4 percent growth rate of the third quarter of 2002.
“Consumers anticipated that the pace of economic growth will slow in the months ahead, but most consumers expect a quick resolution to the war, and thus expect only a temporary impact on the overall economy,” Curtin said.
“I think the war is a contributing factor, I don’t think it’s the sole factor. Consumer confidence has been down for a while,” Business School Prof. Nejat Seyhun said.
Besides the threat of war, oil prices are at the highest level since the Persian Gulf War and are causing consumers to become more concerned about their financial situation.
Seyhun said consumers might cut back on entertainment and other luxury spending to compensate their extra expenditures on petroleum and heating oil.
Engineering junior Paul Lee, who just returned from New York City for his Spring Break trip, said though the economic situation did not affect his traveling plans, leisure expenses were limited during his stay.
“I don’t have much money anymore,” Lee said. “But I am not too worried about the economy because the economy is always a cycle with ups and downs.”
However, most Americans are not as unconcerned as Lee. The Index of Consumer Expectation – another part of the Surveys of Consumers – fell to 69.9 in February from 72.8 in January, indicating consumers still think the future of the economy will remain sluggish.
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 approximately 500 telephone interviews with Americans nationwide conducted by the institute.