After rollercoaster month, consumer confidence plummets

In a not-entirely-unexpected development, consumer confidence dropped significantly this month. The survey, which is administered to 5,000 households throughout the U.S., was conducted between Aug. 1 and 18. Those were the tumultuous weeks following the United States’ downgrade on the S & P credit rating, during which the stock market wildly fluctuated.

However, the timing of the survey does not undermine its accuracy. The point of the consumer confidence rating is to accurately pinpoint consumers’ feelings on the current state of the economy. So even with the relatively uncommon economic happenings of early August, the ongoing high unemployment, bankruptcy and foreclosure rates, as well as higher costs for gas, food and clothing, likely contributed to consumers’ lack of confidence in the economy.

According to The Conference Board Consumer Research Center, the Consumer Confidence Index fell to 44.5 in August, which is the lowest level since April 2009’s 40.8 index and a significant drop from July’s 59.2. According to the Conference Board, an index above 90 signals that the economy is “on solid footing,” and an index above 100 indicates strong economic growth.

Because consumer spending accounts for approximately 70 percent of economic activity in the United States, one of the main purposes of the index is to gauge consumers’ willingness to buy and spend. This, in turn, stimulates the economy and improves the index. However, with an unemployment rate that is stagnant at 9 percent, low home values, and rising costs for everyday necessities, it is unlikely that Americans will significantly increase their spending anytime soon.

Source: Atlanta Journal-Constitution, “Consumer confidence lowest in 2 years,” Annie D’Innocenzio, Aug. 30, 2011