People may have been more jittery about making big purchases
last month, despite signs that the economy is recovering. But
experts say consumer fears are actually smaller than expected.
According to a report released Friday, consumers’
confidence in the economy fell last month despite the economy
recording growth last quarter.
The drop has been attributed to concerns about slow job growth
as well as rising oil prices.
The Index of Consumer Sentiment, released by the
University’s Surveys of Consumers on the last Friday of every
month, was 91.7 in October, down from 94.2 in September. This drop
was smaller than expected, experts at the Survey of Consumers said.
This month marks the first time that this number has been above 90
for 12 consecutive months after September 11, 2001.
Richard Curtin, director of the University’s Survey of
Consumers, said in a written statement that the decline in
confidence was small because “the surge in gas prices was
nearly over and (consumers’) apprehensions about future job
growth lessened.”
At the same time, this was the first time in five months that
consumers expected the economy to improve in the long term.
“Consumers expected the economy to improve rather than
worsen during the year,” Curtin said.
Economists estimate that real consumption spending would rise
3.25 percent during 2005, when adjusted for inflation.
Nejat Seyhun, professor at the Stephen M. Ross School of
Business, said that confidence is falling in the short run because
jobs are not being added as quickly as expected and “some
sectors are not doing well.”
He said the economy continues to show some signs of strength,
fueled by home buying coupled with low mortgage rates, but added
that for the economy to perform well, it needs to add more
jobs.
Even though consumer confidence slipped in October, gross
domestic product — which is the value of all goods and
services produced in the United States — grew 3.7 percent in
the third quarter, up from 3.3 percent in the second quarter,
according to numbers released on Friday. Economics Prof. Benjamin
Chabot said GDP growth has been high compared to historical levels.
He expects the economy to continue its strong growth, as it has
been growing above its historical average for the past seven
quarters. The economy has recorded an average 4.3 percent growth
rate for the past seven quarters.
“The impressive GDP growth isn’t reflected in
consumer confidence because employment and the stock market have
not kept pace with the overall economy,” Chabot said.
Consumers expected an increase in inflation to 3.1 percent in
October from 2.8 percent in September. According to the report,
even though increases in energy prices will cause a decrease in
spending this holiday season, holiday spending should still
increase from the previous year.
Chabot said rising gas prices would not impact holiday
spending.
“In inflation-adjusted dollars, gasoline is much cheaper
today than it was in the 1970s and 1980s, and gas makes up a
significantly smaller portion of the current consumer’s
budget,” he said.