Consumer confidence still ebbing

Michigan consumers are in a definite winter funk, data released today by The Conference Board http://www.conferenceboard.org/ indicates.

The New York-based business research group's U.S. Consumer Confidence Index dropped to its lowest point in 10 months, falling to 46.0 in February from 56.5 in January. Readings in the 90s reflect belief that the economy is on solid footing, while anything above 100 indicates consumers believe the economy is growing. The index is based on surveys of 5,000 households nationwide.

Some of the increased gloom came from the Middle and South Atlantic regions, which were recently slammed by blizzard-induced business slowdowns and other hardships. Softness also showed up in the Mountain and Pacific regions.

Still, ground-zero for pessimism remains the East North Central region that includes Michigan and four other Great Lake states. This region's consumer confidence reading now stands at 41.0. As components of the overall Index, their confidence in the Present Situation dropped from 17.9 to 8.7, and confidence in Expectations for the future declined from 76.0 to 62.5.

The Board's Index is a closely watched indicator of consumer psychology -- an essential aspect of economic recovery because consumer spending accounts for an estimated 70% of all U.S. economic activity.

Nationwide, the share of consumers claiming conditions are "good" declined from 8.5% to 6.2%, while those calling conditions "bad" increased from 44.7% to 46.3%.

"Consumers short-term outlook also took a turn for the worse, with fewer consumers anticipating an improvement in business conditions and the job market over the next six months," says Lynn Franco, Director of the Conference Board Consumer Research Center. "Consumers also remain extremely pessimistic about their income prospects. The combination of earnings and job anxieties is likely to continue to curb spending."

Across the U.S., the share of consumers expecting fewer jobs over the next six months increased from 18.9% to 24.6%. Those anticipating more jobs will become available in the months ahead declined to 13.4% from 15.8%. Those saying jobs are "hard to get" rose from 46.5% to 47.7%, while those who think jobs are "plentiful" fell from 4.4% to 3.6%.

MI perspective: Economists are watching these metrics carefully because, traditionally, job growth comes after a recovery in investor confidence, improved market performance and increased consumer spending. In these regards, economic recovery is in part a self-fulfilling prophecy. Until investor and consumer confidence establish firmer footing, data indicating economic recovery are likely to remain choppy.