Consumer confidence plunged in February as Americans grew far less confident about the current state and the future prospects of the American economy. The Conference Board reported that its consumer confidence index tanked to a level of just 75, down from last month's reading of 87.3. This is the lowest reading since February of 2003 when the index reached 64.8.
Economists were clearly caught off guard by this major of a drop in one month in the consumer confidence number. The average estimate from economists was for a reading of 83. Even more startling was the expectations index, which measures how consumers feel about the next six months in the economy, plunged to 57.9 from 69.3 in January. This expectations index number was the lowest recorded since January of 1991.
The fact that the drop was this drastic is an extreme concern for the economy. While further declines in consumer confidence were expected to a degree, nothing to this level was being predicted, even by the most bearish economists. It is quite amazing that the expectations index now sits lower than it did at any point after September 11th of 2001, when the American economy was in such chaos.
Interestingly, several consumers in the survey pointed to the current employment situation as their reason to be negative. In January 20.6% of respondents said jobs were hard to get in the current environment. In February alone that number rose to 23.8%.
What does this drop mean to the chances of recession? This number alone raises such chances significantly. It also raises red flags that the recession may not be nearly as short-lived as many have hoped. Time will tell if this is just a blip or not, but if this is the beginning of a trend a recession is a sure thing.
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