By Saurabh Kumar
American people are worried about the future of the nation’s economy, as indicated by the Consumer Confidence Index (CCI). The CCI fell for the third month in a row this past September, reaching a seven-month low. Economists suggest that the decline in confidence is attached to widespread concerns about the ongoing spread of the Delta variant and inflation.
With the Delta variant of the novel coronavirus continuing to spread not only in the U.S., but also in foreign and developing economies, concerns about restrictions, shutdowns, and government mandates are rising once again. While new cases in the U.S. are trending downward after a peak in mid-September, vaccine shortages still pose a challenge to many parts of the globe, and talk about booster shots for vaccinated individuals has brought back concerns about the virus’ spread. After the economic downfall caused by the initial onset of the pandemic, businesses have been slow to recover—if they were even fortunate enough to survive in the first place. As individuals and organizations yearn to return to “normal life”, ever-looming fear of the Delta variant has left many with a bleak outlook for the future.
Inflation and other shortages also seem to be playing a major role. With prices continuing to grow for goods and services, Americans are hesitant to spend the money they have. The Conference Board’s survey indicates that interest in making major purchases like homes and vehicles in the near future is waning. This is no surprise considering home prices are continuing to rise in an unprecedented fashion. Shortages of labor and raw materials have also influenced rises in prices for other goods as supply chain issues challenge many industries. The ongoing semiconductor microchip shortage, for example, continues to strain on the automotive industry.
Weeks of back and forth in Congress surrounding two large and vital spending bills—the Bipartisan Infrastructure Framework (BIF) and its counterpart reconciliation package—have also brought instability to the stock market, with the Dow fluctuation unpredictable over the last week. Mounting pressure to raise the debt ceiling has also played a role as Treasury Secretary Janet stressed the nation could exhaust its cash reserves if the ceiling is not raised by mid-October. Confusion and strong rhetoric regarding the Congressional nightmare have not been of much comfort to consumers as implications about taxes, employment, and welfare programs are still unresolved.
As pressures from seemingly every direction pose a threat to the current state of the economy, the effect on consumer outlook has been captured in the falling Consumer Confidence Index. The CCI is a survey administered by The Conference Board that measures how optimistic people are about the future of the economy. The idea is that when consumers are more optimistic about the future, they are more likely to spend their money on goods and services, stimulating the economy. When they are less optimistic, on the other hand, they stash away more of their income. The Conference Board stated last week that the CCI had dropped to 109.3 at September’s end.
The Consumer Confidence Index is one of the most frequently used—and according to Investopedia, most accurate—economic indicators. However, there is debate surrounding the usefulness of the metric. Some economists believe the CCI is a lagging indicator, which means it responds only to changes in the economy that have already occurred. Others believe that it is a leading indicator as consumer behavior accounts for 70% of the economy, and changes in this behavior have important implications for its future.
Whatever the case, it is clear that the American people are worried, and this can have far-reaching implications for businesses of all sizes. Drawn-out low periods in consumer confidence can mean economic slowdowns or even recessions. As the holiday season approaches, many companies are replenishing inventories in hopes of boosting sales, but only time will tell how firmly fear has taken hold of American consumers. □
- Image Source
- CDC COVID Data Tracker. (n.d.). Retrieved from https://covid.cdc.gov/covid-data-tracker/#trends_dailycases
- Fontdegloria, X. (2021, September 28). Consumer Confidence Continues Slide on Covid-19, Inflation Worries. Retrieved from https://www.wsj.com/articles/consumer-confidence-continues-slide-on-covid-19-inflation-worries-11632842406
- Harrison, D., & Friedman, N. (2021, September 28). Home-Price Growth Hit Record in July. Retrieved from https://www.wsj.com/articles/home-price-growth-hit-record-in-july-11632834044
- McWhinney, J. (2021, September 27). Understanding the Consumer Confidence Index. Retrieved from https://www.investopedia.com/insights/understanding-consumer-confidence-index/
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- U.S. consumer confidence hits seven-month low; goods trade deficit widens. (2021, September 28). Retrieved from https://www.cnbc.com/2021/09/28/us-consumer-confidence-falls-again-in-september-to-lowest-since-february.html