ANN ARBOR, Mich. – The mood of U.S. consumers plunged this month, in its sharpest decline ever recorded, according to the latest data from the Reuters / University of Michigan Surveys of Consumers.
The survey’s Consumer Sentiment Index fell 12.8 points – the largest monthly decline since the survey began in 1978 – to a preliminary October reading of 57.5, Reuters reported today. Compared with October 2007’s 75-point reading, the Consumer Sentiment Index was down 17.5 points, or 23.3 percent. (READ MORE)
The index had been expected to fall to 65 points, from September’s final score of 70.3, based on the median forecast from a Bloomberg News poll of 61 economists. (Their estimates for October ranged from 55 to 74.1 points.)
The actual score represented the largest monthly decline since the survey began in 1978, and pared the index to 28.1 points, or 32.8 percent, below its 2007 average of 85.6. But it remained above the 51.7-point record low of May 1980, as well as the readings this June and July. (READ MORE)
Analysts blamed job losses, the banking crisis, the credit crunch and, most of all, the recent losses on Wall Street. “Even gasoline-price decreases were overpowered by the massive destruction of wealth,” as the stock markets plunged, Michael Feroli, an economist at JPMorgan Chase & Co. in New York, told Bloomberg News. “Things are pretty awful in the economy and that should make itself felt through weaker consumer spending.”
The survey’s Expectations Index – an indicator of future consumer spending, based on consumer hopes for the economy over the next half-year – fell to 56.7 points this month from 67.2 in September.
Meanwhile, consumers’ price fears rose, with survey respondents predicting that inflation a year from now will rise to 4.5 percent, rather than the 4.3 percent forecast by last month’s survey or the 3.4 percent of the October 2007 survey. Five-year inflation predictions declined, however, to a two-year low of 2.8 percent.
“It is easy to understand why the index declined, so it is questionable how much impact the [report] will have,” Tony Crescenzi, chief bond-market strategist at Miller, Taback & Co. in New York, told Reuters, adding: “Investors are certainly braced for bad news, as evidenced by the behavior of the financial markets.”
The wild swings typical of recent New York trading were being exacerbated by the expiration today of nearly 80 million options, or about a quarter of the roughly 337 million options in existence, Bloomberg News said citing figures from the Chicago-based Options Clearinghouse Corp.
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“We’re going to be in for a wild ride,” said Michael Nasto, the senior trader at U.S. Global Investors Inc. in San Antonio. “It’s going to be like Coney Island.” At 12:57 p.m., the Standard & Poor’s 500 Index was up 1.9 percent at 963.96 points, after high-to-low swings as wide as 5.2 percent, while the Dow Jones Industrial Average had fallen as much as 261 points.
But markets rallied again later in the day on a “buy” advisory from mega-investor Warren Buffett and brighter-than-anticipated earnings news from Google Inc., Bloomberg reported. So by 2:11, the S&P was up 26.4 points for the day, or 2.8 percent, at 972.83; the Dow was up 210.82 points, or 2.4 percent, to 9,190.08; and the Nasdaq Composite Index climbed was up 43.94 points, or 2.6 percent, at 1,761.65.
The Reuters/University of Michigan Surveys of Consumers report is produced each month by the University of Michigan and distributed by Reuters. The survey dates back to 1946 and its Consumer Sentiment Index to 1952. Additional information is available at www.sca.isr.umich.edu.
