Auto Credit Express Blog
October 1, 2008
Latest U of M Consumer Survey Scrambles to Catch Up to Economic Crisis
The latest University of Michigan/Reuters Surveys of Consumers, because of its timing, only included the first week of the escalating financial crisis. Prior to this, it looked as though consumer confidence had bottomed out, but the last week of September changed events dramatically.
Timing is everything
Here at Auto Credit Express, it’s our job to keep our dealers up-to-date on the latest economic news. In the car business, we all know that timing can be everything. And just as unexpected events can affect our sales; it also appears that the events that occurred during the last week of September affected the findings of the most current consumer survey from the University of Michigan.
Here, then, is the report in its entirety:
Financial Crisis Lowers Consumer Confidence
ANN ARBOR. Prior to the events of the past week, consumer confidence appeared to have reached its cyclical low. That changed dramatically. “Consumers have expressed heightened apprehensions about prospects for the economy due to the escalating financial crisis adding to the steep declines recorded over the past year,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. The renewed declines reflect the dire economic predictions from the President, the Treasury Secretary, and the Fed Chairman. “These grim economic prospects were not unexpected since consumers believed the economy was already in recession, but the language used by the officials to describe the extent and depth of the financial crisis was nonetheless alarming to consumers,” Curtin added.
The warnings of the economic policy makers had the effect of reducing confidence in financial institutions as well as in the ability of the real economy to withstand the financial crisis. “However important the explanation is for the passage of the bailout, lost confidence cannot be easily regained; confidence can be only restored slowly through experience,” Curtin said. Now the only issue is how deep and how long will the cutbacks in spending last. “The upcoming holiday shopping season will be swamped by financial turbulence, with holiday retail sales posting the lowest growth rates in decades,” according to Curtin.
The gains recorded through most of September, largely due to lower inflation, were not offset by growing apprehensions during the last week of the month. The Index of Consumer Sentiment was 70.3 in September, up from 63.0 in August, but substantially below the 83.4 recorded last September and the peak of 96.9 in January 2007. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators that is noted for its ability to foreshadow recessions, was 67.2 in September, up from 57.9 in August, but it remained below the 74.1 recorded last September and the peak of 87.6 in January 2007.
Nine-in-ten consumers throughout September thought that the economy was in recession. In the last week of the September survey (from September 18 to September 25 accounting for about 20% of the sample), 79% of all consumers expected bad times in the economy during the year ahead, up from 57% earlier in the month. Moreover, during the past week 64% expected a rising unemployment rate in the year ahead, up from 45% earlier in September.
These recent figures were as negative several months ago, and then posted slight gains starting in July. The return to the cyclical lows means that the length of the downturn will be prolonged. “If the financial crisis causes a further loss in confidence in financial institutions or in the ability of the real economy to withstand the financial crisis, a deeper as well as longer downturn in consumer spending will result,” Curtin said.
The central concern of consumers continues to be job prospects, expected income gains, and high fuel and food prices. These concerns dominate not only consumers’ evaluations of their own financial position but are an important factor behind the declines in their buying plans. One-third of all consumers specifically cited their concerns about future jobs and incomes when asked about their reasons for postponing purchases of household durables, including furniture, appliances, home electronics, and other goods. Tightening credit conditions have also constrained purchase plans, with one-in-ten consumers mentioning that they had recent problems obtaining credit.
