Much of the remaining confidence Americans had in the economy is ebbing away. Unfortunately, that could play right into a vicious economic cycle.
"Eroding consumer confidence foreshadows weakening consumer spending, which could further hurt the already deteriorating economy since consumer spending accounts for more than two-thirds of the nation’s economic activity," according to the Associated Press.
"A big worry is the employment market, which has been shedding jobs in recent months. The Labor Department is expected to show another loss of 65,000 when it releases its April report Friday; that follows a 80,000 job loss in March. Analysts also estimate that the unemployment rate will remain at 5.1 percent," according to the AP.
The percentage of respondents who described jobs as "hard to get" rose from 24.5 percent in March to 27.9 percent in April. The percentage of respondents who described jobs as "plentiful" declined from 19.2 percent in March to 16.6 percent in April.
The lack of confidence in the flagging economy has been spurred on by rising gas and food prices and weakening job prospects. As a result, "a widely watched measure of consumer sentiment [reached] a five-year low, a private research group said Tuesday," according to the AP.
"The New York-based Conference Board said that its Consumer Confidence Index, which had plummeted in March, fell again to 62.3 in April, down from the revised 65.9 last month and 76.4 in February. The number was in line with the consensus estimate of 62 from Wall Street economists surveyed by Thomson/IFR, but the index remains at its weakest point since March 2003, when it registered 61.4, ahead of the U.S. invasion of Iraq," according to the AP.
The Consumer Confidence Index was not the only index that fell between March and April. "The Present Situation Index, which measures shoppers’ current assessment of economic conditions, dropped to 80.7 in April from 90.6 in March. The Expectations Index, which measures the outlook over the next six months, was little changed at a depressed 50.1, compared to 49.4 in March," according to the AP.
Other economic reports capture the same dismal outlook. The housing market’s continued slump was measured by Standard & Poor’s/Case-Shiller index, which recently indicated that "housing prices dropped in February at the fastest rate ever," according to the AP.
Housing prices have fallen 15 percent since their peak levels in 2006, according to the AP, and may continue to fall. Robert Shiller, the economist behind Standard & Poor’s/Case-Shiller index, said he predicted that housing prices might fall by more than 30 percent, eclipsing the housing slump seen during the Great Depression.
"The percentage of respondents surveyed who intended to take a vacation over the next six months has fallen to a 30-year-low, another indication that consumers are turning more frugal," according to the AP. Even teenagers are becoming more frugal; for more on that, see our blog post Recession Forces Teens To Curb Spending.
"Meanwhile, money from the government’s economic stimulus plan have begun dropping into bank accounts — but with rising gas and groceries bills, early indications suggest that shoppers will focus on catching up on basics like meat or eggs, instead of buying a new TV or clothes. That means that grocery stores and discounters could be the few beneficiaries in the retail world of the stimulus plan," according to the AP.
The Federal Reserve is widely expected to cut interest rates by another quarter point tomorrow and then hold interest rates steady for the rest of this year. The Fed’s repeated interest rate cuts have been attempts to boost the economy without encouraging inflation.