Consumer confidence increased slightly in October. The Conference Board's Consumer Confidence Index was 81.1, up 4.1 points from the revised 77.0 in September. This increase mostly reversed September's unexpected drop. October's reading was above economists' expectations of 79.6. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.
Confidence increased across both portions of the Conference Board index. The Present Conditions index was up 7.1 points to 66.8 in October. This index measures how consumers perceive the current state of the economy.
The Expectations portion of the index, a measure of future economic activity, increased moderately to 90.7 in October from 88.5 in September.
The University of Michigan's Consumer Sentiment Index, a comparable index, also increased in October to 89.6 from 87.7 in September. Both component indices also increased. The Present Conditions index grew 1.5 points to 99.9 in October, while the Expectations portion improved to 83.0 from 80.8 in September.
Consumer confidence strengthened some in October but has remained somewhat stagnant for the past six months as consumers wait for the economy to improve. The labor market is still weak and consumers have high debt burdens and little pent-up demand for spending. Confidence is particularly unstable for those without jobs. Increased energy prices for the coming winter months may also weigh on spending.
However, consumers with jobs have a little brighter outlook. Cash flows have been positive, with modest wage increases, tax cuts and home equity refinancing options. There is some support for consumer spending in retail price deflation and low interest rates. In fact, according to the National Retail Federation's 2003 Holiday survey, consumers are expected to spend an average of $672 this holiday season, up 3.5 percent from 2002.
If labor markets stabilize and the economy continues to recover, confidence should gradually strengthen. Since consumer spending accounts for two-thirds of the U.S. economy, consumer confidence will remain a closely watched economic indicator.
Sources: www.conference-board.com
www.economy.com
