Strategy

Consumer Confidence Plunges to Record Low

The Conference Board predicts negative consumption in the next quarter and says the signs are bad for businesses.
Alan RappeportOctober 28, 2008

Consumer confidence plummeted to a record low in October, signaling fears that business and labor-market conditions are sharply deteriorating, according to a closely watched monthly survey.

The Conference Board said today that its consumer confidence index skidded to 38 from 61.4 in September. The research firm polls 5,000 American households each month, and this month’s decline was the third largest since the survey began in 1967. Last month the index ticked up by 0.3 percent after five months of steady declines.

“The impact of the financial crisis over the last several weeks has clearly taken a toll on consumers’ confidence,” said Lynn Franco, director of The Conference Board Consumer Research Center.

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The latest survey found that consumers are “extremely pessimistic” and fear that their earnings will shrink while inflation grows. The results bode poorly for retailers who could face a difficult holiday shopping season, according to Franco.

In October, more consumers felt business conditions were “bad” compared to September, and more said jobs are “hard to get.” Moreover, the outlook for the coming months is gloomy.

“Clearly consumers are concerned about earnings and jobs, which will make them cautious spenders,” Franco told CFO.com. “This, in turn, could lead to a further pullback in spending.”

Franco said The Conference Board is predicting “negative consumption” in the fourth quarter and that the decline in demand would be bad for businesses. Companies pay close attention to consumer sentiment and spending, as both indicators directly impact the flow of receivables on corporate balance sheets.