Another day, another drama on Wall Street. On Monday, the Dow Jones industrials plummeted roughly 800 points before rising late in the afternoon for an overall drop of around 370. But the swirl of numbers so far does not include perhaps the surest sign of hard times on the horizon: consumer confidence data. "For sure, we're going to see a decline in response to recent events," says Nicholas Souleles, a professor of finance at the University of Pennsylvania's Wharton School of Business. "How much remains to be seen."
Two main indices measure consumer confidence in the U.S., where consumer spending accounts for about two-thirds of the economy. One is a monthly report by the Conference Board, a nonprofit supported by business executives. The University of Michigan publishes a similar monthly survey. During the summer, despite high gas prices and swings in the real estate market, consumer confidence edged upward to hover at a fairly strong level, considering the mounting bad economic signs. The Conference Board put its consumer confidence rating at 59.8 for September, a slight improvement from 58.5 in August. Compare that with the index's nearly 20-year low of 55.3 in 1991, when the U.S. fell into recession following the first war in Iraq. (In good times, the index can be well above 100 points.) But the latest series of events on Wall Street and in Washington are undoubtedly shaping consumer confidence in ways that have yet to register on the index.
A sudden, precipitous drop would almost certainly signal the beginning of a recession, since in many ways consumer confidence in the economy is the result of self-fulfilling prophecies: financial anxieties on Wall Street and frantic election-year politicking over the economy aren't really the kinds of things that buck up everyday spenders. But other factors now present in the economy affect popular thinking as well: energy costs, inflation, credit markets and job availability. Thus, the spectacle of Monday's roller-coaster ride on Wall Street may be just one more push toward the point when Americans start to pocket their wallets and thus slow down the economy drastically. When the stock market crashed in 1987, for example, consumer confidence fell but then quickly recovered, helping the U.S. to dodge a possible recession. It was different in 1991, when rising oil prices added to emerging consumer worries and thus stalled the U.S. economy.
A 1987-type situation could happen now though there are few signs of hope on the horizon for solutions to alleviate the effects of the market crash. In September, employment continued to fall in construction, manufacturing and retail trade, according to the Bureau of Labor Statistics, which put the nation's unemployment rate at 6.1%. Shutoffs of electricity and gas are rising as families struggle to pay bills with the onset of winter weather across much of the country. And tent cities are beginning to pop up in places like Reno, Nev., and Seattle for the first time in decades.
Still, sure evidence of a coming economic disaster has yet to be delivered to the minds of many economic experts looking for early trends in the next batch of consumer-confidence data. The University of Michigan survey is expected to produce preliminary figures in mid-October. Main Street may then deliver even harsher economic news than Wall Street has thus far.