U. S. consumers run up white flag
CONFIDENCE AT 13- YEAR LOW Katrina and record high gas prices taking toll
CHICAGO • U. S. consumer confidence plummeted to a 13-year low in early September, battered by record high gasoline prices and the full force of Hurricane Katrina, a report showed yesterday.
Separate data showed the U.S. current account deficit, the broadest measure of U. S. trade with the rest of the world, narrowed in the second quarter but remained at levels seen as unsustainable over the long term.
The University of Michigan’s closely-watched consumer sentiment index fell to 76.9 in September from 89.1 in August, far below Wall Street forecasts and the 81.8 hit after the Sept. 11, 2001, attacks on New York and Washington.
The current conditions dropped to the lowest level since December, 2003, while the expectations index plummeted to the lowest since February, 1992.
“If these declines were part of the normal economic cycle we would now call for a recession in the United States. But they aren’t; the index is responding to a shock, and we expect it quickly to rebound,” said Ian Shepherdson, chief U. S. economist at High Frequency Economics.
The result was similar to trends in other consumer surveys as well as a string of major polls showing waning support for the Bush administration’s economic policies.
“I think there’s probably also a degree of loss of confidence in the government,” said David Sloan, economist at 4CAST Ltd. in New York.
Analysts said the Michigan index suggested consumers, after months of stoicism in the face of rising gasoline prices, have reached a tipping point. For some Americans, gas prices well over US$ 3 per gallon in some areas threatens the sustainability of the suburban SUVshopping mall lifestyle.
Moreover, disturbing images from the aftermath of Hurricane Katrina revealed broad social and economic inequalities in the United States, adding to concern about the nation’s direction.
“ It really does reflect the enormous amount of coverage of the Katrina disaster,” said John Shin, economist at Lehman Brothers in New York.
Analysts note that consumers often sing the blues but rarely cut spending as a result — the link between sentiment and spending is tenuous. Still, the latest drop in confidence was termed a worry for retailers.
“ We expect a couple of very rough months for consumers spending,” Mr. Shepherdson said.
Financial markets in the United States showed little response to the report, which had been telegraphed by other indicators this week.
The stock market posted moderate gains while U.S. Treasury securities yields rose on worries about inflation.
Earlier, the Commerce Department said the U. S. current account deficit narrowed in the second quarter to US$195.7-billion, but the previous quarter’s record deficit was revised even higher.
The quarterly shortfall, the second highest on record, compared with Wall Street forecasts for a deficit of US$ 193- billion. The first quarter gap was revised to a record US$ 198.7- billion from the initial US$ 195.1billion deficit.
“Despite the fact that you had a narrowing on the quarter based on the first quarter being revised wider, the outlook really isn’t that positive,” Sophia Drossos, G10 currency strategist at Morgan Stanley in New York.
“ The expectation is that it [the gap] will continue to grow until there’s more give from the Asian countries because most of their currencies are tied to the U. S. dollar,” said Timothy Rogers, chief economist at Briefing.com in Boston.