consumer confidence index for October crashed to 79.4 from 93.7 in September -- the lowest level in nearly nine years. The current conditions series -- representing consumers' assessment of the state of the economy -- dropped to 77.5 from 88.5, while gauge measuring their expectations for the next six months fell to 80.7 from 97.2.
While the October reading came in well below market forecasts, the figure was in line with the degree of weakness already indicated in the most recent University of Michigan consumer sentiment survey, as well as the latest ABC/Money Magazine survey. All are now hovering at 8-9 year lows.
Overall, ongoing weak levels in the stock market, concerns about a war with Iraq, and lingering uncertainty regarding the economy and employment all are continuing to depress consumers' outlook. In addition, weakness was led by the Mid-Atlantic region, which suggests the D.C.-area sniper attacks during the first three weeks of the month also may have been a big drag.
While the hope is that still-healthy trends in income growth, recent stability in employment, and the surge in refinancings will help support consumer spending through year-end, the recent sharp declines in confidence imply that the downside risk to consumption is rising. One notable feature of the report was the marked drop-off in plans to buy an auto and a home. Also worth noting was the further rise in the jobs "hard-to-get" subcomponent of the index, which suggests downside risk for the October
employment report, scheduled for release Nov. 1.
The unexpectedly sharp decline may put the Fed on the spot at its Nov. 6 policy-setting meeting. Prices of Fed funds futures -- a trading vehicle for market pros to bet on future interest rate moves -- shot higher after the report was released. The market is suggesting a little better than 80% chance of a quarter point rate cut next week. We at MMS International still expect no policy change next week -- but we'll wait for the release of the October employment report for final judgement. From MMS International staff analysts