Americans’ confidence in the US economy sank even lower amid heightened fears about shrinking job opportunities and the possibility the country is falling into recession.
According to the RBC Cash Index, confidence dropped to a mark of 48.5 in early February, from 56.3 last month. The new reading was the worst since the index began in 2002 and surpassed the previous low reached in January.
The continued erosion in confidence comes despite the fact that Federal Reserve Chairman Ben Bernanke has gotten much more forceful in cutting interest rates to induce people to buy more and bolster the economy. The Fed slashed interest rates twice over the span of just eight days in January – the US central bank’s most aggressive rate reductions in two decades.
The White House and Congress, meanwhile, want to energize the economy by giving rebates to people and tax breaks to businesses. Congress passed an emergency plan Thursday that sends rebates to most taxpayers in an effort to spark the economy. President George W Bush has indicated he would sign the measure.
Still, an increasing number of economists worry that the rescue efforts by the Fed and the politicians may not be enough to avert the first nationwide recession since 2001. Some economists believe the economy has already toppled into a recession.
“Consumers are being hit by a series of body blows economically,” said Carl Tannenbaum, an economic consultant in Chicago.
One of the biggest causes of angst: a weakening job market, analysts said. US employers cut jobs in January for the first time in more than four years, the government reported last week. Wage growth also slowed last month, the report showed.
Another source of anxiety: a housing slump that continues to drag on. The housing bust has led to record-high home foreclosures and has dragged down home values – usually peoples’ single biggest asset – making them feel less wealthy. In addition, high energy and food prices are squeezing budgets and turbulence on Wall Street is shrinking nest eggs. All these things are making people feel more insecure about their own financial fortunes and more concerned about the direction of the economy as a whole.
Over the past year, consumer confidence has deteriorated a lot, underscoring the toll of the housing collapse and a credit crunch that has made it harder for people to secure financing for big-ticket purchases such as homes, cars and appliances. Last February, confidence stood at a buoyant 103. The index is based on results of the international polling firm Ipsos.
“We are on the cusp of, or in the early stages of a recession. The confidence numbers clearly reflect consumers” feelings about that,” said Greg McBride, senior financial analyst at Bankrate.com.
Economic problems have helped pull Bush’s approval ratings to all-time lows. Only 29 per cent of the public approve of the president’s handling of the economy, the lowest mark yet, according to a separate Associated Press-Ipsos poll. Bush’s overall job-approval rating slid to 30 percent, also a record low, the poll said.
A measure looking at current economic conditions dropped to 63.6 in early February. And, a gauge of attitudes about investing, including comfort in making major purchases, fell to 62.6. Both readings were the lowest in six years of record keeping.
Looking ahead, individuals’ sentiments about the economy and their own financial standing over the next six months stayed in negative territory. This gauge came in at a negative 7 per cent in early February. That followed an even worse reading of negative 8.2 per cent in January, which was the lowest since right after the deadly blows of hurricanes Katrina and Rita in 2005.
Another index tracking consumers’ feelings about employment conditions fell to 101.3 in early February, the lowest since April 2004.
Economists keep close tabs on confidence barometers for clues about peoples’ willingness to spend.
Shoppers are showing signs of pulling back.
Major retailers, including Wal-Mart Stores Inc., the world’s largest merchant, on Thursday reported weak sales figures for January – further evidence of a faltering economy. Even when redeeming their holiday gift cards, shoppers mostly bought necessities. Affluent shoppers retrenched, too, hurting stores like Nordstrom Inc.
Consumer spending accounts for a big slice of overall economic activity. Thus, their behavior plays a major role in determining how the economy ultimately fares.
The economy nearly stalled in the final three months of last year, and some economists believe it may actually be shrinking in the current January-to-March quarter.
Under one rough rule, the economy would have to contract for six months for the country to be considered in a recession. The likelihood of a recession has risen sharply over the past year, and analysts increasingly believe the US will be in one during the first half of 2008. The worry is that people and businesses will hunker down and pull back their spending, sending the economy into a tailspin.
The RBC consumer confidence index was based on the responses from 1,006 adults surveyed Monday through Wednesday about their attitudes on personal finance and the economy. Results of the survey had a margin of sampling error of plus or minus 3 percentage points. The overall confidence index is benchmarked to a reading of 100 in January 2002, when Ipsos started the survey. (AP)
US consumer confidence sinks even lower