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Consumer confidence continues downward spiral, expert says

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Published: November 19, 2008

Q: What is the state of consumer confidence in this region, based on the results of your poll taken in October?

A: The current state of consumer confidence in mid-America continues to worsen in our latest survey. In fact, for the past year we have seen a steady to steep decline in consumer confidence. There has been enormous volatility in not only the stock market, but also the commodity markets. Over the course of the past year, we have seen gasoline prices in excess of $4 per gallon, which reduces the discretionary spending of households. Those higher gasoline and diesel prices have obviously also had a very negative impact on the automobile industry. During the past two months, however, we have seen a dramatic fall in oil and gasoline prices. Concurrent with this, we have seen severe pressure on the banking system and a great deal of volatility in financial markets. There is much uncertainty in the market today, and consumers react to this uncertainty by holding off spending decisions.

Q: There was a rise in the level of consumer expectations. How significant was that?

A: Our survey indicates that a year from now consumers expect things will improve but marginally. Given the congressional approval of the $700 billion rescue package and the massive amounts of liquidity being provided to the banking system by the Federal Reserve, I think consumers felt like things could be stabilized.

Q: What did you find to be the most surprising finding of the survey?

A: In the Midwest, we continue to experience relative calm with respect to the mortgage markets and housing. Our bankers learned their lessons from the energy bust of the early 1980’s and have taken a more conservative approach to lending, so we did not have the real estate bubble in the Midwest like they did on the coasts. Our survey indicates that the number of foreclosures and the expected number of foreclosures in the Midwest have been fairly small.

Q: What do consumers seem to be most concerned about?

A: Two to three months ago the biggest concern was gasoline prices. With the rapid fall in oil and gasoline prices, the current concern is the employment situation. Consumers are restricting their spending based upon uncertainty, and some of this uncertainty relates to the possibility of being laid off. Concerns about employment will reduce discretionary spending during the upcoming holiday season and one of our charts shows that 53 percent of consumers in the Midwest expect to spend somewhat less or much less during this upcoming holiday season.

DON MECOY, BUSINESS WRITER