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Main Street Anxious Over U.S. Economy

Sifting through some of the latest data, I can’t help but notice that Main Street is becoming increasingly worried about U.S. economic conditions. The Conference Board, a business membership and research group, announced yesterday that U.S. consumer confidence had declined to its lowest level in nearly 2 years in September due to a weaker job market and uncertain business conditions. The consumer confidence index fell to 99.8 in September from a revised 105.6 in August, which is the lowest level since November 2005. In the Board’s press release, Lynn Franco, Director of The Conference Board Consumer Research Center, had this to say about the survey conducted among 5,000 households:

The Consumer Confidence Index is now at its lowest level in nearly two years (Nov. 2005, 98.3). Weaker business conditions combined with a less favorable job market continue to cast a cloud over consumers and heighten their sense of uncertainty and concern. Looking ahead, little economic improvement is expected and with the holiday season around the corner this is not welcome news.

Economists surveyed by MarketWatch confirmed that the drop in confidence points to slower consumer spending in the fourth quarter. MarketWatch reported yesterday that Nigel Gault, U.S. economist at Global Insight, told clients:

We often say that it is more important to watch what consumers do than what they say. But gloomy reports from Target and Lowe’s this week suggest that consumers have become more cautious. So in this case the signal from sentiment looks accurate.

A week ago today the Washington Post reported that a recent Reuters/Zogby poll indicated one in three Americans expected a U.S. recession in the next year, and less than a quarter thought home prices would rise. “There has been much, much, much more talk about a recession in the last 30 days than there had been before,” said pollster John Zogby, who attributed the increase to bad news on the housing and employment front. The survey of 1,011 Americans was conducted September 13-16, a week after the government’s employment report showed an unexpected drop in jobs in August, the first such decline in four years. The Reuters/Zogby poll revealed that 31% of those surveyed expected home prices in their area to stay level next year, while 35.5% expected prices to drop a little, and 8.5% predicted home values would drop significantly. Meanwhile, only 4.2% expected prices to rise a lot while 18.7% thought they would increase just a little. The rest were not sure. Zogby remarked:

That’s massive. Homes are seen not only as part of living the American dream, but they’re also seen as an investment. This sort of anticipation is very unhealthy because it drives behavior. This is like consumer confidence. When you add it all together, it is (the makings of) an economic slowdown.

As consumer spending accounts for two-thirds of the U.S. economy, these latest reports are worrisome, to say the least. Some economists and analysts had argued that business investment would make up for a decline in consumer spending. However, the Commerce Department reported today that demand for durable goods, those made to last at least several years, fell by a more-than-expected 4.9%. Excluding transportation equipment, orders declined 1.8%. According to Bloomberg, “The report suggests that business investment, which economists predicted would cushion the expansion from a slowdown in consumer spending, may instead weaken.”

Not good.