Consumer confidence takes a nosedive

The Consumer Board indicated that the consumer gloom was in large part due to the debt-ceiling negotiations, with Congress and the White House barely coming to a deal before the Aug. 2 deadline. 

The financial markets have also had a topsy-turvy month, with the ratings agency Standard & Poor’s announcing an unprecedented downgrade in the U.S. credit rating from AAA to AA+. The Dow Jones Industrial Average also dropped once the new consumer-confidence numbers were released.

“A contributing factor may have been the debt-ceiling discussions, since the decline in confidence was well under way before the S&P downgrade,” Lynn Franco, director of the Consumer Board’s consumer research center, said in a news release.

Other consumer-confidence gauges, such as the index from Thomson Reuters/University of Michigan, had also recently declined to their lowest points in months or years.

But analysts still had not expected the consumer-confidence numbers to come in quite so low. Economists surveyed by Bloomberg and Reuters, for instance, had predicted the index would drop only to 52.

The Consumer Board found that expectations for the economy and the business climate fell significantly in August, from 74.9 to 51.9. Consumers’ view of the current situation was more stable, falling 2.2 points to 33.3.

Forty percent of consumers also now believe business conditions are poor, a slight increase from last month, and almost half now think jobs are hard to get.

The index also found consumers more than 2.5 times more likely to believe there will be fewer jobs in the months to come than more jobs (31.5 percent to 11.4 percent), and twice as likely to think economic conditions will continue to trend downward.