In another blow to the nation’s already battered economy–especially the flagging retail sector–consumer confidence in September suffered its biggest drop in more than a decade.
Experts have been closely watching consumer confidence because shoppers have been largely responsible for propping up the teetering U.S. economy. If increasingly nervous consumers opt to hold down spending, they could dramatically worsen the monthslong downturn.
“While consumers have managed to keep the U.S. out of recession for several years now, that soon may no longer be the case,” predicted Lynn Franco, director of the Conference Board’s research arm.
The New York business group’s survey–mostly conducted before the Sept. 11 terrorist attacks–showed the consumer confidence index dropped to 97.6 from August’s 114 reading, providing clear evidence that Americans have recently become much more worried about the job market, business conditions and their own family incomes.
Because consumer spending accounts for two-thirds of gross domestic product, the unexpectedly sharp drop in the index–which reached its lowest level in nearly six years–is sparking considerable concern. It’s of particular importance to retailers, who have endured two weeks of falling sales in the wake of the attacks as they head into the critical holiday sales season.
The effect has trickled down from retail giants like Bloomingdale’s parent Federated Department Stores Inc., which warned that sales are sharply below forecasts since the attacks, to smaller shops, entertainment venues and restaurants.
Travel and tourism have been especially hard-hit; the falloff in restaurant traffic, for example, has been felt more acutely at establishments that depend on tourists than by neighborhood eateries, said National Restaurant Association President Steven Anderson said.
Local eateries say they’ve seen the same pattern. “The first few days were pretty shaky after the incidents,” said Laurie Myer, night manager at the Dearborn Diner in Chicago.
Where consumers’ spending will head in the months ahead remains a subject of considerable debate. The latest confidence report, for example, doesn’t provide a definitive answer for those investors eager to quantify exactly how much the terrorist attacks have sapped consumers’ willingness to spend. Although the Conference Board’s index is one of the first major surveys to be completed since the terrorist raids, the group said its poll found Americans’ attitudes little changed in the initial days after the attacks.
Impact of attacks unclear
While a substantial but undisclosed majority of the 5,000 households in the survey were interviewed before the attacks, the board said, the responses of the subjects contacted after the raids only “differed slightly.” Last week, however, corporate layoff announcements surged, which could further undermine consumers’ outlook.
A Conference Board spokesman declined to elaborate on the responses of those surveyed before and after the attacks.
Overall, the report “reflects weak economic conditions prior to Sept. 11 and the uncertainty about the future course of the economy in the aftermath of the attack,” said Economy.com economist Sophia Koropeckyi, who also pointed out that the number of consumers who said they’re planning to buy homes, appliances and autos declined less sharply than the overall confidence figure did.
“It is impossible to tell what part of the decline can be attributed to the Sept. 11 events” and what part is due to other factors, such as the consumer unease spurred by an accelerating increase in the nation’s unemployment rate, said Banc One Capital Markets economist Anthony L. Karydakis.
“The key,” he said, “will be whether there is any improvement in October.”
The Conference Board’s index is based on a base of 100 in 1985. The board said the 16.4-point drop in September’s reading represented the biggest decline since the measure tumbled 27 points in October 1990, after Iraq’s invasion of Kuwait.
And that earlier drop in confidence, Barrington Research Associates’ Alexander P. Paris said, “was followed by a downturn in consumer spending” that pushed an already slowing economy into recession.
Bad news for retailers
For retailers already bracing for a weak holiday season, the slump in consumer confidence is unwelcome news, and any debate over what’s behind it is strictly secondary.
“I’m sure a good deal of the drop was [due to] Sept. 11,” while the big corporate layoffs that have recently sent shock waves through the nation’s workforce also played a role, said Rosalind Wells, chief economist of the National Retail Federation. “The bottom line is, consumer confidence plunged.”
Last week, Wells lowered the federation’s projection for holiday-season sales growth to a Scroogelike 2.5 percent or 3.0 percent, down from her earlier forecast of 4.0 percent or 4.5 percent. Tuesday’s confidence figures won’t change that call, she said, in part because she had pessimistically been expecting the Conference Board measure would drop to 95.
The 1990-91 Persian Gulf conflict “produced a similar kind of reaction” in consumers, she said Tuesday. “People were kind of transfixed watching TV, didn’t go to the stores–but eventually they came back.”
