South-Westerns' Economic News Summaries
Consumer Confidence Drops
Subject Consumer Confidence
Topic National Income Accounts
Key Words

Consumption Spending, Expectations, and Economic Activity

News Story

Most economists and investors expected a continuation of the consumer confidence index around the 106 mark in July. After rising for three months in a row, the Consumer Confidence Index reached a three-year high of 106.2 in June, but then fell by three points to 103.2 in July.

Consumer confidence is a powerful forecast of consumption spending. As such, economic analysts carefully watch this number and how it varies from month to month. The more confident consumers are, the higher consumption is likely to be for any given level of GDP. This most recent report of a decrease in confidence could signal a reduction in consumer spending in the near future. However, the July fall in the index, although unexpected, is still considered to be a solid level of confidence. The dip was "no cause for concern," said Lynn Franco, director of the Consumer Research Center. "The overall state of the economy remains healthy and consumers' outlook suggests no storm clouds on the short-term horizon. Even the steady upward tick of fuel prices at the pump has done relatively little to dampen consumers' spirits."

Other news in the economy, including the continuing high level of oil prices and higher housing prices, explains some of the downturn in consumer confidence. "There was enough bad economic news this month to justify a slight dip in consumer confidence," said Mark Vitner, senior economist at Wachovia Bank. Lynn Franco added that " while there is little to suggest a downturn in activity, there is also little to suggest a pickup."

The Conference Board's indexes are based on surveys of 5,000 households that participate in consumer research panels. The latest report is from about 2,500 responses that have been received so far in July. The report will be revised as additional responses are received.


Use the Internet to find out what percentage of GDP is made up of consumer spending.

2. Why do you think higher fuel prices have not influenced consumer confidence more at this point? Do you think that this will continue to be the case?
3. Aside from consumption expenditures, what are the other main components of GDP?
Source Associated Press, "Consumers Upbeat, but Slightly Less So," The New York Times Online, July 27, 2005.

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