Government shutdown drives consumer confidence to yearly low
Consumer confidence in the economy declined to its lowest level since December 2012 after the government shutdown disrupted economic activity. The Reuters/University of Michigan Consumer Sentiment Index fell 4.2 points to 73.2 for October.
The Consumer Sentiment Index measures personal confidence in economic activity, and is a general gauge for consumer willingness to spend money. The index is based on interviews with 500 American consumers. Economists underestimated the impact of the budget impasse on consumer sentiment, according to a median estimate, which called for the monthly indicator to fall only 2.2 points to 75.3.
October marked the first time in 17 years the United States federal government closed its doors. The cumulative impact of the shutdown is yet to be determined, but preliminary estimates show it cost the US economy $24 billion. Market participants fear the temporary solution to the debt ceiling will set up another round of confrontations early next year, as House Republicans seek to undermine President Barrack Obama’s Affordable Care Act.
The monthly survey revealed consumer expectations reached their lowest level since November 2011. Confidence in the current economic climate reached its lowest level since April. Falling consumer confidence can have a negative impact on holiday spending, especially since the Senate deal to end the impasse was only a temporary fix. Sluggish job creation in September and rising jobless claims in October could adversely impact consumer sentiment leading up to the holiday season. Jobless claims climbed 66,000 to 374,000 in the week ending October 5; applications would later fall to 35,000 for the week ending October 18, shifting the four-week moving average to 348,250.
Consumer sentiment is well below pre-crisis levels. In the five years before the start of the financial recession in December 2007, the index’s average reading was 89. Consumer confidence reached a six-year high in July, when the index reached 85.1.
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