Consumer Confidence: October 2002

The Conference Board's Consumer Confidence Index declined for the fifth consecutive month during October. After a cumulative loss of almost 17 points from May to September, the composite CCI fell by about 14 points during October alone. With this latest decline, consumer confidence has sunk to its lowest level since November 1993.

With an October 2002 reading of 79.4 on the Conference Board's scale, in which average confidence during 1985 is equal to an index level of 100, the most recent composite CCI was 6.9% lower than during October 2001 - but, then, the indexes for September and October 2001 were already showing the depressing effects of the 9/11 terrorist attacks on New York and Washington. Compared with August 2001, this October's confidence measure shows a plunge of more than 30%.

The Present Situation subindex of the CCI fell by 11 points from September to October and was 27.7% below the still reasonably confident (if only in the spirit of resolved defiance to terrorism) October 2001 index level. The Expectations (defined as six months into the future) component of the CCI, however, paints a much brighter picture and provides a continuing hopeful sign that Americans believe that the worst of this downturn will soon be behind us and that consumer spending will remain resilient, even in the face of future economic and geopolitical challenges. Nevertheless, this subindex did fall 17% from September to October. But compared with the dark days of October 2001, the Expectations component has shown remarkable improvement - evidence that American consumers remain confident that better days are ahead, but also still suggesting that the momentum of the economic recovery will be painfully slow to build. Consumer expectations - in indexed form at least - this October were 14.1% more buoyant than in October 2001.

Confidence indexes for all nine regions in the nation declined from September to October of this year. The steepest declines were in the Middle Atlantic (-23.6%), New England (-17.2%) and Rocky Mountain (-15.6%) states. But two regions, the East South Central (+32.3%) and the South Atlantic (+5.7%), continued to record confidence measures this October that were higher than during the same month a year ago. New England's 25.1% over-the-year decline was the steepest among the losses recorded in the seven other regions.

The part of the Conference Board's survey that measures actual buying plans (during the upcoming six months) of American households also has deteriorated significantly in recent months. It's clear that the sluggish economic recovery and heightened concerns about a war with Iraq have combined to cause consumers to plan to save more, at least in the short term. During August, 31.3% of households surveyed told interviewers they planned to buy at least one major appliance during the upcoming six months. In September/October, that number plunged to 27.1% - even lower than during the fall of 2001, in the wake of the terrorist attacks. Home-buying plans dropped from a 4.5% share to a 3.1% share of households from August to October, with the sharpest decline in new home (versus existing home) purchase intentions. And auto purchase intentions dipped to 6.8% during October after reaching a high of 8.3% in July.