Archived Story

Consumer confidence continues to decline

Published 3:05pm Tuesday, August 31, 2010

Uncertainty about the economy continues to shake consumer confidence. As reported by the two primary agencies responsible for measuring it, consumer confidence declined for the second consecutive month in July.

But this is only part of the story. One of the agencies reported that confidence was at its lowest level since last November.

And, using a slightly different approach, the other noted that it was the lowest since February 2010.

Low consumer confidence does not bode well for the future. Our overall confidence in our role as consumers plays an integral role in shaping the dimensions of the U.S. economy.

When we are confident about the economy, we tend to increase our purchases, especially large items, and take on substantial debt commitments.

On the other hand, when our expectations are negative, we tend to curtail spending and concentrate on rebuilding financial reserves.

Consumer confidence is important because consumer spending accounts for more than 70 percent of gross domestic product (GDP). Since consumers constitute such a large share of the GDP, a shift in expectations can shape the future direction of the economy. In short, expectations provide insight into future levels of economic activity.

At present, the recovery from the severe economic downturn continues to be anemic and fragile. While GDP grew at a 2.4 percent annual rate for the second quarter of the year, unemployment stubbornly clings to the 10 percent level, posing the risk that the economy could slip into another downturn.

According to economists, consumers have continued to grow increasingly more pessimistic about the short-term outlook. The decline in confidence reflects concerns about overall business conditions as well as the job market.

To gain insight into how consumers view the economy, watch for monthly reports on consumer confidence. One is published by Thompson Reuters/University of Michigan and the other by the Conference Board, an international association of business firms located in New York City.

Wayne Curtis is on the board of directors of First United Security Bank. He can be reached by e-mail at wc_curtis@yahoo.com.

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