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University of Michigan Consumer Confidence still near low
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Consumer confidence declined in February as consumers came to the consensus view that the economy would remain in recession throughout 2009. Moreover, nearly two-thirds anticipated that the downturn would last five more years. More consumers than at any other time in the past fifty years have voiced their concerns about the deepening recession and rising unemployment. Few consumers now expect the recession to end anytime soon even with the aid of the new stimulus package recently signed into law. Recent economic developments reported by consumers have been quite negative, ranging from bailouts of banks and manufacturers, mortgage foreclosures and bankruptcies, the freezing of credit markets, and plunging home and stock prices. Despite the many aspects of the current economic crisis, the single event that has dominated the concerns of consumers has been the rapid increase in joblessness. Consumers expect the unemployment rate to rise to 9% before the end of 2009, and their heightened concerns about their future job and income prospects have prompted consumers to reduce their spending. Overall, the data indicate that total real personal consumption spending is expected to decline by -1.6% in 2009, twice as steep as the worst prior annual decline since WWII.
The Index of Consumer Sentiment was 56.3 in the February 2009 survey, down from 61.2 in January and last February’s 70.8 and the cyclical peak of 96.9 set in January 2007. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 50.5 in February, down from 57.8 in January and 62.4 last February, and substantially below the cyclical peak of 87.6 in January 2007. This was the largest sustained decline recorded during the past half century, falling by 42% from the cyclical peak.
Fast spreading unemployment was the primary concern of consumers. Sharp increases in joblessness were expected to result from an accelerating downturn. The February survey recorded a nearly universal belief that the economy would be in recession for at least another year and that continuous economic gains would not return for at least five years.
Posted: February 27, 2009 Friday 10:00 AM