The financial markets wait to see how drops in consumer confidence will impact different industries and companies. Upcoming earnings announcements are expected to provide more insight into the answer to this question.
Burdened by fears about job loss, rising food prices, record-high home foreclosures, stricter lending practices, and rocketing energy costs, American’s confidence in the economy fell to a new low. According to the RBC Cash Index, consumer confidence dropped to a 29.5 mark in April, down from 33.1 in March. According to the international polling firm, Ipsos, last April, confidence stood at 85.4. Over the past year, however, consumer confidence has deteriorated with the sagging economy. The worst reading in the index’s six-year history marks the fourth consecutive month in a row where confidence has fallen to an all-time low.
“Consumers are very pessimistic,” said Wachovia economist, Mark Vitner. “There are not a lot of happy campers out there.”
Economists keep close tabs on confidence indicators for clues about consumer spending, which is a major shaper of economic activity.
Analysts note that rises in unemployment and job losses make people more uneasy. The unemployment rate has jumped from 4.8% to 5.1%, which is the highest rate reported since the aftermath of the Gulf Coast hurricanes in 2005. High gasoline prices which limit discretionary income have also eroded consumer confidence. According to AAA and the Oil Price Information Service, gasoline prices recently climbed to a new record of $3.357 a gallon.
Similarly, recent reports that 8.8 million people owe more on their homes than the homes are worth and that this number may double have made many Americans uneasy.
First quarter earnings reports should provide investors with more information about how severe and protracted the current downturn will be. Unfortunately, the early indicators don’t appear positive.