Labor, business conditions hurting consumer confidence

Consumer confidence and spending is the gauge for the short-term condition of prevailing business. The Consumer Confidence Index for the September stood at 97.6, down from 114.0 in August. 16.4-point drop within a month is the largest drop since October 1990. Although the index result is slightly different from the survey conducted before the terrorist attacks, the big picture of a downward trend has been consistent. \nConsumers' general expectations of economic activity during the next half-year are even more devastating. According to research conducted by the Conference Board, a non-profit worldwide research institution, the percentage of consumers that think business conditions will worsen has increased to 15 percent from August's 10.7 percent. The number of consumers anticipating their family income to increase has declined to 21.1 percent from 23.2 percent in pervious month. Also, the number of consumers expecting better business conditions six months from now has decreased to 22 percent from 27.7 percent in August. \nThe Conference Board interprets the Consumer Confidence Index slump as robustly fueled by sluggish labor market conditions and deteriorating business conditions. \nDuring the week ending on Sept. 22nd, the number of seasonally adjusted initial claims to the U.S. Department of Labor rose to 450,000, an increase of 58,000 from the previous week marking an unemployment rate of 4.9 percent. \nOn September 17th, the Federal Open Market Committee decided to cut the federal funds rate by 50 basis points to 3 percent, the eighth consecutive rate cut this year. According to a press release dispatched after the decision, the institution revealed its intention to pump an uncommon volume of liquidity into the financial markets.\nThe Federal Reserve anticipates these actions will stimulate consumer spending and investment. With these actions in mind, it had confidence in the long-term perspectives of US economy. \nFurther more, it will have another meeting Tuesday to decide whether to cut interests rates further. This would be the ninth consecutive rate cut of the year and create the lowest rates since 1963.\nAlan Greenspan, Chairman of the Federal Reserve, was still confident that the terrorist attacks would only have a temporary effect. \n"For the long term, prospects for continued rapid technological advance and associated faster productivity growth are scarcely diminished," Greenspan said during his speech to the Committee on Banking, Housing, and Urban Affairs in the Senate, Sept. 20. \nIndeed, there are many who believe the long-term U.S. economy will not be hindered by the effects of September's terrorist attacks. \nThe CEO of Wells Fargo Investments, LLC, and President of Private Client Services said Monday that despite the national tragedy, he believes the U.S. economy is the safest place in the world to invest and that stock prices will be higher in the next 12 to 24 months.\nStill, some people disagree and believe that consumers are no longer the driving force behind the U.S. economy that they once were. \nLynn Franco, Director of The Conference Board's Consumer Research Center, is still skeptical about further interest rate cuts.\n"As the economic ramifications of Sept. 11 continue to reverberate in the coming weeks and months, and the number of layoffs continue to rise, the economy faces tougher times ahead. While consumers have managed to keep the U.S. out of a recession for several years now, that soon may no longer be the case."\nBill Witte, an IU economics professor, said it is impossible to predict the full impact of the attacks. \n"There is enormous amount of uncertainty for the US economy." \nWitte suggested that in October, the unemployment rate, stock market performance, and other economic data would show how the U.S. economy would develop in the near future. Since terrorist attacks on Sept. 11 occurred in the middle of the month, Witte concluded that the September economic data are not enough to measure the precise impact on the future economy.