Consumer Confidence dropped sharply in August, falling to 44.5 from a revised 59.2 in July. While a decline was expected, the degree of deterioration was much greater than anticipated. The result was the worst single month drop since October 2008 – in the heart of the credit crisis.
Consumer confidence has trended downward since its February peak at 72.0 and is now at its lowest point in 10 months
Consumers have become increasingly pessimistic as the economy is slipping again and the jobs market has stalled. The debt ceiling showdown in Washington didn’t inspire confidence in our leaders or their ability to effectively deal with the fiscal challenges that face our country. The eleventh hour deal to stave off the first U.S. default may have prevented a greater calamity, but it did little to restore faith in the political system or parties, nor was it sufficient to avoid a downgrade to the country’s AAA credit rating.
The average American family remains pressured by high indebtedness, persistently falling home prices, and very limited income growth. Consumers seem to recognize that the problems that we are collectively facing will not be easily solved, and any solution is likely to require sacrifices in the years ahead.
Despite this skepticism, July’s consumer spending was relatively strong. However, there is a significant risk that pervasive pessimism will contribute to a vicious downward cycle if consumers pare their spending further.
The economy remains at a tenuous point, susceptible to shocks. Given their significance to overall growth, consumers may hold the key to avoiding a double-dip recession in the months ahead.
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