Consumer Confidence Takes a Dive Following Budget Crisis

In Industry News, What's New by Jeff PrineLeave a Comment

Debt CrisisNew York—The political stalemate that resulted in a U.S. government shutdown and a near default has had an impact far beyond the halls of Congress.

In its first report since Congress finally agreed—at least temporarily—to reopen the government and extend the debt ceiling, The Conference Board, an industry group, reported Wednesday that its consumer attitudes index dropped to 71.2 in October from a revised 80.2 in September. It was the biggest decline since August 2011.

Economists’ average prediction expected the index to be 75.0.

To Remain Volatile?

Lynn Franco, economist at Conference Board, blamed the “federal government shutdown and debt-ceiling crisis took a particularly large toll on consumers’ expectations.”

“Similar declines in confidence were experienced during the payroll tax hike earlier this year, the fiscal cliff discussions in late 2012, and the government shutdown in 1995/1996,” Franco said. “However, given the temporary nature of the current resolution, confidence is likely to remain volatile for the next several months.”

The last-minute bipartisan deal offers a temporary fix and no permanent solution to the issues dividing the Republicans and Democrats. Under the provision, the government reopened after 16 days and now has the funds to operate through Jan. 15, 2014, and the debt ceiling is raised until Feb. 7. That means further budget battles, even another government shutdown could come again early next year.

The Board also found consumers to be less optimistic about their current situations with the present situation index down to 70.7 in October from a revised 73.5 in September.

“What we’re seeing is more hesitancy among consumers given the fiscal policy uncertainty and the absence of confidence about future employment prospects,” said Michael Brown, an economist with Wells Fargo & Co., who had projected a reading of 71.5. “It’s very clear that consumers are going into this holiday season more restrained than last year in terms of the pace of spending.”

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