In the latest survey of consumer sentiment, the Ann Arbor-based Institute for Social Research finds consumers suffered the largest decline in confidence in the history of the survey.

Not much good news out there

Here at Auto Credit Express, we know as wel as anybody how tough it is out there for car dealers right now. Still, we try to remain upbeat when it comes to the statistics and surveys coming out every month. But even the most optimistic of observers will find little to hang their hat on in the most recent survey of consumers:

ANN ARBOR. The October survey recorded the largest monthly decline in consumer confidence in the history of the surveys. “Consumer confidence had already declined by mid 2008 by more than prior to any past recession and the steep October loss indicates that accelerated cutbacks in spending can be expected during the months ahead,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers. Overall, the data indicate that this will be the bleakest holiday spending season since 1980. “Consumers held the least favorable assessments of their finances in more than a half century and viewed their job prospects more negatively than at any other time since the end of 1980,” according to Curtin.

The data indicate that a long and deep recession is likely to occur, with spending expected to decline through most of 2009. Consumers anticipated an unemployment rate reaching 8% by the end of 2009. Total real personal consumption expenditures are expected to fall by -0.50% to -0.75% in 2009 compared with 2008, followed by unusually slow paced recovery in 2010.

The Index of Consumer Sentiment was 57.6 in the October 2008 survey, a record 12.7 points below the 70.3 in September, and 23.3 points below last October’s 80.9. Since the cyclical peak was set in January 2007, the Sentiment Index has declined by 41%, the largest peak to trough decline in history. 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 57.0 in October, down from 67.2 in September and 70.1 last October. The Expectations Index has decline by 35% since its January 2007 peak.

“Nearly every consumer reported that they had heard media reports about the spreading impact from the financial and credit crisis, lower home and stock values, or rising unemployment,” Curtin said. The largest proportion in the history of the survey thought that the economy was in recession. Few expected the federal intervention to resolve the credit crisis anytime soon. “Consumers rated the current administration’s economic policies more unfavorably than ever before in the long history of the surveys and the majority of consumers reported they had less confidence in the Federal Reserve,” Curtin noted.

Consumers reported the most dismal assessments of their current financial situation ever recorded. Just one-in- five consumers reported that their finances had improved in October. Three times as many reported financial reversals. Declines in gas prices could not offset the larger negative impact of widespread income declines. “More families reported income declines in October than in any other survey during the past half century,” noted Curtin.

Restrictions on available credit as well as heightened uncertainty about future job and income prospects have caused more consumers to postpone purchases. When asked to explain their buying plans, more than half of all consumers cited losses and uncertainty about jobs and incomes than ever before in the sixty year history of the surveys. This was true for vehicles as well as for furniture, appliances, home electronics, and other durables. “The more the purchase was associated with the use of credit, the more likely consumers voiced their intent to postpone the purchase,” Curtin said. Tightening credit conditions have increasingly constrained purchase plans, with one-in-ten consumers mentioning that they had recent problems obtaining credit.

The Bottom Line

The next few months are going to be challenging in all areas of the economy – especially the retail segment. You also need to remember, however, that this is a pre-election survey and during presidential election years consumers have always been just a little more hesitant to spend.