Consumer Confidence Drops at the Worst Possible Moment

Consumer Confidence Drops at the Worst Possible Moment

Hey, let’s have a quick catch-up quiz to see how you’re feeling about the economy:

  • How do you feel about current business conditions? What about in the next six months?
  • How do you think employment is doing?
  • Do you think it’ll get easier or harder to find a job in the next six months?
  • How do you think your family’s income will change in the next six months?

You basically just took a consumer confidence survey. And if you’re like the 5,000 U.S. households surveyed last month, you might not be feeling so good.

On the last Tuesday of each month, the Conference Board, a global research organization, releases results on how confident regular people are feeling about the economy and their own finances. The consumer confidence index was started in 1985, and the first results were set at 100. Since then, the index has fluctuated around that number.

This month, the results were as negative as they were in March 2009, at the height of the recession: Our current consumer confidence score is 39.8. Economists would like to see it at at least 90, which would indicate the economy is on solid footing.

Collectively, consumers (read: anyone who buys anything) feel pretty glum about the economy. Translation: They’re worried about employment, and their incomes seem insecure.

A Truly Black Friday

Although this might feel like people’s opinions rather than economic fact, this is bad news, because, as you know, we’re headed into the holiday season. Right now, families and individuals are putting together their holiday budgets, and if they’re looking ahead and thinking they might have to take a pay cut, they’re less likely to throw a bunch of big-ticket items on their credit cards.

That would definitely be responsible thinking on their part, but it’s not what retailers want to hear: Consumers account for 70% of U.S. economic activity, so as go the consumers, so goes the economy.

Well, most of the time.

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But Are We Really That Bad Off?

Currently, consumers are saying they’re worried and don’t want to spend, but they are still out shopping, and not just at the dollar store. (Of course, if they were at the dollar store, they’d buy this.) In September, more Americans bought new cars and retail goods than during the month before. And more Americans are planning to take vacations and buy large appliances in the next six months, as well.

How could that be? A senior economist at Wells Fargo told the Wall Street Journal that persistently gloomy headlines create a crisis of confidence and make people feel worse about the future, even when they still have money to spend.

To Buy or Not to Buy

So here’s the conundrum: We want you to be responsible with your finances, but it’s better for the economy if you go out and spend this holiday season.

The solution: If you are worried about your personal financial future, make sure you have an emergency fund to fall back on if the worst happens. Then create a smart budget for the holidays, and stick to it. Whatever you do, don’t rack up credit card debt in order to buy holiday stuff—if you can’t pay for everything upfront, consider a layaway plan instead.

Consumer confidence may be down, but with the right planning, you can be a confident consumer anyway.

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