ANN ARBOR. Consumer confidence sank to a quarter century low in the April 2008 survey. The decline
was due to high fuel and food prices as well as shrinking income gains and falling home values. “The recent
acceleration in the loss in confidence indicates a longer and potentially deeper recession,” according to Richard Curtin,
the Director of the Reuters/University of Michigan Surveys of Consumers. Rising inflation, higher joblessness, and
smaller income gains has made most consumers more cautious spenders. “Rising uncertainty about future living
standards has caused consumers to adopt more prudent spending plans and become more wary of incurring new debt,”
Curtin said.
The Index of Consumer Sentiment was 62.6 in the April 2008 survey, down from 69.5 in March, and
significantly below the 87.1 recorded last April and the recent peak of 96.9 recorded in January of 2007. The Index
of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 53.3 in
the April 2008 survey, down from 60.1 in March, and well below the 75.9 recorded in April 2007 and the recent peak
of 87.6 in January 2007. From the January 2007 peak, the Expectations Index has fallen 39%; the Expectations Index
fell by 24% prior to the 1990 recession and by 30% prior to the 2001 recession.
Just three-in-ten consumers plan to spend the tax rebate in 2008, with most consumers preferring to repay debt
and add to saving. “With the current high levels of economic uncertainty, most consumers favor adding to their
reserve funds to increase their financial latitude as a safeguard against worsening future conditions,” Curtin noted.
Although the tax rebate will boost spending temporarily, the global rise in food and fuel prices, the declines
in home values and higher credit standards are likely to persist for some time and lengthen the period of stagnation
in consumption. Coupled with weaker job and income growth, these factors are likely to cause a relapse in spending
latter in 2008 and into early 2009 and potentially deeper cutbacks in consumption than has been anticipated.
Smaller gains in inflation-adjusted incomes were expected in April than any time in the past quarter century.
While lower income households have complained for some time about declining inflation-adjusted incomes, in the
latest survey the same declines were anticipated by upper income households as well. “All households now anticipate
smaller income gains and larger price increases, as just one-in-five now expect their overall finances to improve
during the year ahead, the least favorable reading in more than a quarter century,” Curtin said.
The unemployment rate was expected to steadily increase during the year ahead by consumers, rising to 6.0%
by the start of 2009. Nearly nine-in-ten consumers thought the economy was already in recession, and three-in-four
anticipated that bad times financially would persist for at least another year. This was the worst assessment of overall
economic since the early 1980's. “More consumers reported hearing news reports of unfavorable economic
developments in April than any other time in the fifty years history of the survey, with job losses, rising prices, and
the fallout from the housing and credit crisis dominating the reports.
Uncertainty about future income and job prospects has had a devastating impact on buying plans, with
consumers citing these uncertainties three times as frequently as they did a year ago. Purchase plans for furniture,
appliances, home electronics, and similar goods fell to their lowest level since the early 1980s, with one-third of all
consumers specifically mentioning their uncertainty about jobs and incomes as their primary reason. Vehicle buying
plans also fell to their lowest level since the 1990 recession, with one-third of all consumers citing uncertainty about
jobs and incomes as well as the future price of gasoline. |
