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Even Before Attacks, Consumers Were Losing Faith

The Conference Board's monthly measure of consumer confidence falls to its lowest level since January 1996.
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While it's still too early to fully measure the impact of Sept. 11 on consumer confidence, a survey released Tuesday shows it was shaken even before the Twin Towers collapsed in Lower Manhattan.

The Conference Board's consumer confidence index plummeted in September to 97.6, the lowest level since January 1996. The reading was 114 inAugust. The 16.4-point slide is the largest monthly drop since October 1990, when the index tumbled 23 points. About 85% of the 3,000-plus responses received were given before the terrorist attacks earlier this month.

What economists take away from this report is that consumerconfidence is being rocked by more than a one-time event. "Weak responses were coming in even before September 11," said Michael Moran, chief economist at Daiwa Securities America. "This indicates that erosion in the job market and the fall in stock prices were already having an impact on consumer confidence even before the attacks."

U.S. stocks initially traded higher following the release of the data, but by midday, the major averages had pulled back. The

Dow Jones Industrial Average

was recently losing 93 points, or 1.1%, to 8511, and the


was falling 16 points, or 1%, to 1484. The

S&P 500

was slipping 4 points to 999.

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Economists expect an even lower reading in October as consumers account for the tragic events. The Conference Board will revise the September data when it gets the remainder of its 5,000 surveys back.

In the meantime, some economists are speculating as to what the future will hold. "Never in their lifetimes have Americans feared for their safety in going to work, in taking time off, or in procuring their daily needs," wrote Richard Berner, chief U.S. economist at Morgan Stanley, in a report on Sept. 24. "This shock, together with rising uncertainty about the economy, has eroded consumer confidence and destroyed wealth."

Concerns about consumer spending, which makes up two-thirds of the U.S. economy, have been swirling for most of the summer. Now, some economists are saying that a recession is unavoidable. The latest University of Michigan consumer sentiment index, for the two weeks prior to the attack, showed an 8.6% decline.

"While consumers have managed to keep the U.S. out of a recession for several years now, that soon may no longer be the case," Lynn Franco, an economist at the Conference Board, said in a statement. She noted that as ramifications of Sept. 11 reverberate in the coming weeks and as layoffs mount, the economy faces tougher times ahead.

A subindex of consumers' rating of present conditions fell to 125.2 in September, the lowest level since October 1996, from 144.5 in August. A gauge of consumer expectations for the next six months fell to 79.2 from 93.7, the worst reading since April.

The percentage of consumers who saw jobs as hard to get rose to 18.5% in September from 15.7%. "Labor market expectations are the key ingredient for consumer confidence," said Franco. "And the outlook isn't good."

Challenger Gray & Christmas, an outplacement firm based inChicago, has recorded 112,330 layoff announcements since the beginning of September.


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, for example, said on Sept. 14 that it would cut up to 30,000 jobs.

Taken together, a weakening labor market, tumbling stock prices and the threat of war are going to make it increasingly difficult for consumers to regain confidence. And any more surprise events, tragic or otherwise, could shatter what remains.