There’s more bad news for the economy and the stock market after a report from Thomson Reuters and the University of Michigan found that their Consumer Confidence Index in early August plunged to its lowest point since May of 1980.
The August index, which is the result of a weekend survey completed last Sunday, fell to 54.9 from a July level of 63.7.
Prior to the survey, economists had been expecting the August figure, which came after the resolution of the factious Washington fight over raising the nation’s debt ceiling, the S&P downgrade of U.S. sovereign debt and two weeks of market turbulence, to come in somewhere between a low of 59 and a high of 66.5. The median estimate called for a slight drop to 62.
Instead it fell by 8.8 points, or about 13.8%.
Beth Ann Bovino, an economist with Standard & Poor’s, told On Wall Street that the dramatic plunge in consumer confidence “is just one more piece of information about the economy, but overall things are slowing down, and this is more bad news.”
She observed, “Consumer sentiment doesn’t have a clear correlation with spending. After all, people spend when they’re happy, but they also spend when they’re depressed. But still, with jobs still weak, I think it means people will be cautious about their spending.”
Peter Tuz, portfolio manager at Chase Investment Counsel in Charlotte, VA, was slightly less concerned, saying, “Consumer confidence is a pretty fickle number and my guess is that, absent any more budget controversy, the figure will rise a bit in the next report. But if it stays low, then I think it means people’s wallets will stay closed a little more than they would have.”
David Wyss, who recently retired as senior economist at S&P, said, “I think we’re already seeing the market impact” of falling consumer confidence. He added, “I think consumers will calm down once the final budget cuts are in. Still, the degree of pessimism is surprising. Americans usually ignore Washington better than that.”
Wyss suggested that might be a good idea, saying, “Watching Washington work is not healthy for adults.”
The consumer confidence figure follows the earlier release of a Commerce Department report on retail sales which showed sales up 0.5% for July and a report from the Bureau of Labor Statistics that found the monthly number of new unemployment claims filed in July fell to 395,000, a drop of 7,000 from June and a four-month low.