NEW YORK -- The atrocities of Sept. 11 aggravated pre-existing fears about the economy and sent consumer confidence to its worst decline in nearly 11 years.
The Conference Board reported that responses before the attacks on the World Trade Center and Pentagon mirrored those from before. Economists and retail analysts said the attacks only heightened consumers' worries, though they said more data is needed to ascertain the financial hit and judge how far back it sent the retail industry from the road to recovery.
The board's Consumer Confidence Index fell 16.4 points to 97.6 in September from a revised 114 recorded the previous month, the largest monthly decline since October 1990, when the Index fell 23 points amidst fears over the war with Iraq. September's results are 44.9 points lower than last year's, when the index reached a yearly high of 142.5.
"As the economic ramifications of Sept. 11 continue to reverberate in the coming weeks and months, and the number of layoffs continues to rise, the economy faces tough times ahead," Lynn Franco, director of the Conference Board's Consumer Research Center, said. "While consumers have managed to keep the U.S. out of a recession for several years now, that soon may no longer be the case."
Dismal labor and business conditions sent the Present Situation Index, a measure of current consumer sentiment, down 19.3 points to 125.2 in September from 144.5 in the previous month. Consumers rating business conditions as favorable fell to 22% from 27.7%, and those claiming jobs were "hard to get" increased to 18.5% in September from 16% in August.
Expectations for the next six months were even more pessimistic than in previous months, falling 14.5 points to 79.2 from 93.7 in August. The percentage of consumers anticipating worse business conditions increased to 15 from 10.7, and those expecting fewer jobs increased to 21.9% from 17.7%. Consumer income prospects were also less optimistic. In September, only 21.1% expected an increase in their family's income, down from 23.2% in August.
Economists said patriotic sentiment, combined with government stimuli in the forms of relief packages and interest rate cuts, should make for a stronger recovery in the final analysis. Diane Swonk, an economist with Bank One Corp., said that while the attack probably set the recovery back by six months, it set the stage for a "sharp rebound by the spring 2002" which will "more than offset the losses endured."
James Glassman, an economist with Chase Securities, offered a similar assessment. He said he expects the third quarter to show a "pretty dramatic pullback from consumers," but said he believes they and the economy will "prove to be resilient once you get back to business and once we understand what the military threat is."
The events could ultimately stimulate spending, he noted, as shopping and buying have been deemed as patriotic actions. Additionally, "the government is no longer hesitant to use policy to stimulate a more vigorous economic recovery next year," Glassman said.
