The Conference Board's consumer confidence index plummeted to a reading of 85.5 in October from 97.0, which was much worse than expected. Overall, it appears that the "patriotic" strength in consumer sentiment seen immediately following the September 11 attacks is gone. Growing weakness in the labor market and the economy, along with heightened fear and uncertainty tied to more terrorism on the homefront, has dampened consumers outlook.
The bulk of the weakness was seen in the present situations component of the index -- a measure of consumers' perception of the current state of the economy -- which dropped another 18 points on top of September's 19 point decline. That makes for a drop of nearly 40 points over the two months. It is worth noting, however, that the present situations level of 107.6, while the lowest level since January, 1996, still remains well above the 1990-1991 recessionary trough of 22.5.
The report's measure of expectations, a gauge of future economic activity, moderated to 70.8 from 78.1. While the decline here was more modest, this could be because it wass already so depressed. Indeed, this number is not that different from the recessionary trough of 63.5 seen in the early 1990s.
The important thing to take away from this report: The risk remains that the sharp drop in confidence will cause consumers to pull in their horns -- which could leave the economy depressed well into 2002.