Report: Consumer confidence hits low

The report suggests household spending will fall sharply in the coming months.

Chicago Tribune

CHICAGO — Consumer confidence plummeted to a five-year low in March, according to a report released Tuesday, as Americans gloomily surveyed an economic landscape blighted by soaring energy costs, rising inflation, sinking home values and a downturn in the job market.

The Conference Board, a New York-based industry group, said its consumer confidence index dived to 64.5 in March, down dramatically from February’s 76.4 and significantly short of the 73.5 reading that many economists had been anticipating.

The March confidence report, which suggests household spending will drop sharply in coming months, is “very grim news indeed,” said High Frequency Economics’ Ian Shepherdson. “This is one of the most alarming economic reports we have seen in this cycle so far.”

The Conference Board numbers, said Merrill Lynch economist David Rosenberg, “suggest that consumers are on the verge of the worst downturn since the 1970s.” The Federal Reserve’s interest rate cuts and pending tax rebates from the U.S. government “are proving no match for rocketing pump prices, intensifying real estate deflation, the worst financial crisis in decades and a deteriorating economic and employment backdrop,” he said.

Consumer sentiment is an important indicator because it provides a key clue about future economic activity. When jittery consumers begin to cut back on discretionary spending, demand for goods and services weakens across the economy. The Conference Board’s index is also considered to be a particularly nuanced and reliable indicator of conditions in the U.S. job market, and experts scrutinize it for indications about future employment movements.

The index hit its lowest level since March 2003, when Americans were unsettled by the U.S.-led invasion of Iraq. Except for that transient weakness five years ago, the index hasn’t been as low as it was this month since 1993.

Experts said Tuesday’s unexpectedly weak confidence report, while understandable in view of recent negative financial news, offers more evidence that the U.S. economy probably can’t avoid a recession, if it hasn’t already entered one.

“If confidence stays at this level or moves even lower, real consumer spending and economic growth will slow even more, perhaps sharply,” predicted Steven Wood of Insight Economics.

The Conference Board’s survey asks consumers to assess the economy two ways, through a “present conditions” segment and a forward-looking “expectations” segment. Historically, people tend to take a more relaxed view of their present circumstances and to worry more about conditions in the coming six months.

Those dynamics were evident in the March data, but because of deepening fears about the economy, both elements of the survey came in worse than expected.

The present situation reading led the decline, dropping 14.2 points in March, to 89.2 from February’s 104.0. A year ago, the reading stood at 138.5.