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Financial Meltdown Takes Toll on Consumer Confidence

Major drop comes after equally dramatic upswing

October 10, 2008

Personal Finance • Americans Tap Savings to Cope with Economy • Economists' Panel Sees Prolonged Recession • Getting A Small Business Loan in Bad Economic Times • Jobless Rate Spikes in October • Monthly Job Cuts Hit Five-Year High • Business Economists See More Signs of Recession • What's Ahead For the Economy? • Consumer Confidence Plunges to Record Low • Bankers See Recovery in Second Half of 2009 • Autumn Has Long History as Financial Disaster Season • Finding a Job Takes Longer in Slow Economy • Baby Boomers Scramble to Reassess Future • What's Your Recession Game Plan? • Study Finds Racial Disparity in Retirement Savings • New York Threatens to Prosecute AIG for Fraud • Inflation Not a Factor in September • Retirement Postponed for More Americans • Economic Worry Supplants Terrorism Fear • Wall Street Leaders Missing In Action • Doctors Worry About These Stressful Times • Financial Meltdown Takes Toll on Consumer Confidence • Economic Turnaround Will Take Time • Retirement Plans Hammered in Credit Squeeze • Fed Takes Another Step to Bolster Credit Market • Economists Offer Plan for Stabilizing House Prices • House Passes Bailout Bill; Bush Signs Into Law • Senate Expected to Pass Bailout Bill • FDIC Seeks Increase in Deposit Coverage • Voter Anger Rattles Congress; Bailout Fails • Congress Agrees On Compromise Bailout Bill • Somber Washington Prepares for Bailout • Deal Or No Deal: What The Bailout Means To You • FDIC May Need Additional Funds if Banks Keep Failing • Which Type of Money Market Account Is Right for You? • How Does The Banking Crisis Affect You? • Lehman Files Largest Bankruptcy in U.S. History • Why Individual Investors Shouldn't Buy Individual Stocks • Bear Stearns to Pay $28 Million to FTC for Abusive Lending Practices • When Should You Sell Exchange Traded Funds? • Has the Bear Market Hit Bottom Yet? • How Do You Survive a Bear Market? --- • More Personal Finance News

The implosion of Wall Street and the spreading economic predicament have taken a heavy toll on consumers, driving their confidence back down after a brief rally the past two months.

According to the most recent results of the RBC CASH (Consumer Attitudes and Spending by Household) Index, consumer confidence dropped 32 points in October -- the largest single-month decline in overall sentiment since the Index began in January 2002.

The RBC CASH Index plunged to 37.0 from 69.2 in September, driven down by the sharp decline in consumers' economic expectations.

"The dramatic upswing in consumer sentiment last month stemming from declining energy prices has reversed just as suddenly. In the past month, Americans have been confronted by a worsening global credit crisis, a plummeting stock market, rising unemployment and continued housing price declines," said T.J. Marta, Economic and Fixed Income strategist for RBC Capital Markets. "We may be entering a period of manic-depression for consumers, with mood swings dictated by the latest good or bad news."

Highlights of the survey results include:

Consumers' economic outlook deteriorated sharply during the past month, as seen in the RBC Expectations Index, which stands at 5.1, compared with September's 76.3 level. Although still relatively low, the proportion of Americans who think their personal financial situation will weaken over the next six months doubled this month, reaching 14 per cent, versus 7 per cent in September. The shift in the Index, however, was mainly due to consumers' increased pessimism about their local economy.

This month, more than one-quarter of consumers (27 percent) believe their local economy will be weaker six months from now; 13 percent said that last month. Recent experience demonstrates that attitudes regarding the future are more volatile and subject to events-based swings.

And although many consumers have not yet felt additional pressure stemming from the Wall Street meltdown, the climate of "doom and gloom" is significant enough to produce a substantial decrease in the RBC Expectations Index for October and drive the overall RBC CASH Index in a negative direction.

Shell-shocked consumers also are clearly uncomfortable with current economic conditions, as evidenced by the 17.2 drop in the RBC Current Conditions Index to 38.0 from 55.2 in September. The decline in the index is primarily driven by a drop in Americans' comfort level for making major purchases or investments, and in their feelings about job security.

Sixty-nine per cent of consumers said they were less comfortable making a major purchase than they were six months ago, compared with 55 percent in September. The one bright spot is that Americans' perceptions of their personal financial situations improved slightly in October, continuing the slow up tick observed since June's lows. Currently, 29 percent of consumers view the current financial situations as weak, down 4 percent from September.

A clear indication of the depth of consumers' economic woes is the 17 point drop in the RBC Jobs Index to 78.8, an all-time low for the RBC Jobs Index since it began in January 2002. Americans' confidence regarding overall job security declined this month, and expectations about personal job loss experience increased. The proportion of Americans who are more confident about their job security now than they were six months ago dropped to 23 percent, compared with 30 percent in September.

In addition, the share of consumers who said that it is likely that someone in their immediate circle will lose a job in the next six months increased to 28 percent in October from 23 per cent last month. And the number of consumers who are confident that someone close to them will not lose a job in the next month declined significantly to 35 per cent from 46 per cent in September.

Many Americans' watched the value of their investments evaporate this month, sending the RBC Investment Index down to a reading of 47.0, from 63.8 in September. More than six in ten Americans (62 percent) report they are less confident in their ability to save and invest this month, versus 51 percent in September.

The RBC CASH Index is a monthly national survey of consumer attitudes on the current and future state of local economies, personal finance situations, savings and confidence to make large investments.

The Index is composed of four sub-indices: RBC Current Conditions Index; RBC Expectations Index; RBC Investment Index; and, RBC Jobs Index. The Index is benchmarked to a baseline of 100 assigned at its introduction in January 2002.

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