Consumers have expressed the most pessimistic economic outlook in the past quarter century just as the holiday shopping season gets underway. Consumer confidence fell in the last half of November due to mounting job losses, falling incomes, and the evaporation of household wealth. There have been only two surveys during the past half century that found consumers more pessimistic than now, in April and May of 1980—the all-time low was 51.7, a mere 3.6 Index-points below the current figure. Consumers were unanimous in their recognition that the economy was in recession, and nearly three-in-four expected the recession to deepen in the months ahead. The economic downturn was anticipated to prompt a stunning decline in the inflation rate: 39% of all consumers in November expected a zero inflation rate or outright deflation, up from just 5% six months ago. Even the plunge in gas prices was unable to overcome consumers’ heightened uncertainty about future job and income prospects. Although their reluctance to make discretionary purchases is primarily due to job and income uncertainty, consumers’ desire to increase their saving and reserve funds as well as stringent limitation of the availability of credit will also curtail spending. Overall, the data indicate the bleakest holiday spending season since 1980, with declines in consumer spending lasting until the 4th quarter of 2009. Total consumption expenditures are expected to fall by about -1.0% in 2009.

Few consumers expect the recession to end anytime soon as just 14% of all consumers in November expected the return of good times financially in the economy during the year ahead. When asked to identify what economic news they had heard, half of all consumers reported rising unemployment, up from one-in-three in October and one-in-four last November. An increase in the unemployment rate was expected by 69% of all consumers in November, a level that has only been exceeded in one prior survey—72% in 1980. The data indicate that consumers now expect the unemployment rate to be 8.5% by yearend 2009. Given these dismal job expectations, it is easy to understand their planned steep cutbacks in discretionary spending.