Academic journal article ABA Banking Journal

When the Going Gets Tough, Consumers Go Shopping

Academic journal article ABA Banking Journal

When the Going Gets Tough, Consumers Go Shopping

Article excerpt

THE CONFERENCE BOARD'S Consumer Confidence Index hit its lowest level in the months leading up to the conflict in Iraq, but has been gradually rising since then.

That changed, however, when Hurricanes Katrina and Rita battered the Gulf Coast region. The sudden drop in the index suggests that the hurricanes were a major factor in deteriorating consumer confidence.

Repeated interest rate hikes by the Fed have made credit card debt and home equity loans more expensive, also increasing consumer pessimism.

In terms of the impact to consumers' pocketbooks, rising gasoline prices surely have been the number one concern when people responded to recent sentiment surveys. To forgo buying gasoline because of higher prices is simply not an option for most families. Simply put, higher gasoline prices leave less money for discretionary spending and also for savings. The higher cost of heating oil this season will further reduce discretionary income for households.

It is widely believed that weak consumer confidence will eventually lead to reduced spending. However, recent reports from the Department of Commerce have shown that consumer spending grew at a healthy pace. Hurricane insurance payments led to the biggest increase in personal income in ten months and boosted spending. While consumption of durable goods slumped, mainly due to weak auto sales, increased spending on other goods and services more than made up for it. …

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