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Hurricane Katrina Wallops Consumer Confidence

September 28, 2005
The Conference Board Consumer Confidence Index, which had rebounded in August, plummeted in September. The Index now stands at 86.6 (1985=100), down from 105.5 in August. The Present Situation Index decreased to 108.9 from 123.8. The Expectations Index fell to 71.7 from 93.3 last month.

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“Hurricane Katrina, coupled with soaring gasoline prices and a less optimistic job outlook, has pushed consumer confidence to its lowest level in nearly two years (81.7 in October 2003) and created a degree of uncertainty and concern about the short-term future,” says Lynn Franco, Director of The Conference Board Consumer Research Center.

“Historically, shocks have had a short-term impact on consumer confidence, especially on consumers’ expectations. Fuel prices remain high, though they have retreated in recent days, and when combined with a weaker job market outlook, will likely curb both confidence and spending for the short-run. As rebuilding efforts take hold and job growth gains momentum, consumers’ confidence should rebound and return to more positive levels by year-end or early 2006,” Franco said.

Consumers’ overall assessment of current conditions was considerably less favorable in September. Those claiming business conditions are “good” declined to 25.2 percent from 29.7 percent. Those claiming conditions are “bad” increased to 17.7 percent from 15.1 percent.

The employment picture was also less upbeat. Consumers saying jobs are “hard to get” increased to 25.4 percent from 23.1 percent, while those claiming jobs are “plentiful” fell to 20.1 percent from 23.6 percent.

Consumers’ outlook for the next six months turned considerably pessimistic. Those anticipating business conditions to worsen increased to 19.8 percent from 10.0 percent. Those expecting business conditions to improve declined to 15.3 percent from 18.7 percent.

The outlook for the labor market also soured. Those expecting more jobs to become available in the coming months decreased to 14.0 percent from 16.4 percent. Those expecting fewer jobs increased to 25.0 percent in September, up from 17.3 percent in August. The proportion of consumers anticipating their incomes to decrease in the months ahead rose to 10.8 percent from 8.9 percent last month.

The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.

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