Consumer confidence numbers have recently started to take a dive. At a time of year when spending is typically at an all- time high, what do these dropping numbers mean? Let’s take a look at what low consumer confidence means for the economy.
Decrease in Confidence
There is a scale at which consumer confidence is measured. It’s called The Conference Board’s Consumer Confidence Index. Based on input from people in the work force, it measures how optimistic or pessimistic consumers are about their expected financial situation. It seems, because of drastic inflation, consumers aren’t feeling great about their employment prospects, current salaries and recent/upcoming raises.
An article written for aljazeera.com explains, “Consumer spending drives roughly two-thirds of US economic growth. So when consumers start feeling less optimistic about the economy’s prospects, it could signal that activity is poised to downshift. US households have been grappling with soaring prices this year, as businesses – faced with rising costs from labour and raw material shortages – pass at least a portion of those increases on to consumers. In October, US consumer prices year over year surged at their fastest pace in three decades.”
Escalating prices have caused many consumers to take a step back in terms of spending. They’ve started purchasing cheaper products or simply avoiding unnecessary purchases altogether. Essentially, if a product no longer fits into a consumer’s budget, they’re willing to go without until the sticker shock has worn off a bit.
During what is supposed to be the busiest retail season of the year, it’s not a good sign that people are leery of spending their money. As the U.S. repeatedly uses bail outs in order to avoid economic depression, this kind of consumer behavior doesn’t bode well for the future. Based on these numbers, it seems as though people are preparing for economic turmoil by saving rather than spending.
What’s causing this decrease in consumer confidence? As previously mentioned, the dramatic increase in the cost of goods has made buyers leery. The last couple years have been financially challenging for many due to Covid-19. With the current Delta variant and the new variant Omicron emerging, people are wondering if they’re going to need to save their money in case of additional shutdowns. It’s possible that they’re stocking up on groceries and other essentials in order to prepare for another emergency situation. In this case, many families wouldn’t have much money left for other Holiday purchases.
Lastly, another factor that has caused a decrease in the consumer confidence index is that there are fewer people making large purchases. Items like homes, major appliances and cars would improve consumer confidence scores but people aren’t currently rushing to buy. This is likely influenced by the lack of inventory as well as increased prices.
As we venture into the busiest retail season of the year, it will be interesting to see if consumer confidence continues to take a dive or if a comeback is possible.