Consumers may be less confident to spend and invest during "sluggish" economic times due in part to a weak labor market and the looming war in Iraq, according to a recent consumer survey.
The Consumer Confidence Index, a survey of consumer expectations and present conditions, fell to the lowest level since October 1993. The survey researches and analyzes consumer attitudes, public interest information and trends for better business performance.
Each month, five-question surveys are distributed to 5,000 households to poll consumer perception and expectations of business and employment conditions and family income. These responses are then averaged to determine consumer attitudes regarding economic situations.
"Confidence has a prominent role in all economic senses," MSU economics Professor Charles Ballard said.
"The Consumer Confidence Index raises worry that expenditure will weaken where we have already seen business expenditure fall," Ballard said, adding it is tough to judge attitudes by a study where questions are psychological rather than behavioral.
"You have to try to get into the minds of people," he said.
Ballard said a fear of a looming war could be cause for consumer apprehension, though it is tough to be sure.
"In the buildup to the war, it is not uncommon that people would be nervous," he said. "War, by it's very nature is unpredictable, and there is a lot of uncertainty about what it would create."
Ballard explained consumer expenditure is holding up rather well in the rough economy, as opposed to business expenditure. Businesses have been more weary than consumers to invest.
"If a business feels queasy about the future, they will be much less likely to invest in a new factory," he said.
Even during rough economic times, it is important for consumption and investment expenditure to remain strong, Ballard said.
Lynn Franco, director of the Consumer Research Center for The Conference Board said recent consumer analysis is "painting a pretty grim picture."
The Conference Board is the group that analyzes the results of the study.
Franco said although consumers were pessimistic about the future of business and employment, not all attitudes can be contributed to "war jitters."
The lack of turnaround in the labor market is the key economic factor of the struggling economy because it is the primary source of consumer income, Franco said.
Increased out-of-pocket expenses stemming from rising energy costs and gas prices may also have contributed to increasingly negative consumer attitudes, she added.
"Though noneconomic factors tend to affect expectations, you will see a slight rebound if there is a resolution in the Middle East," Franco said. "But we will not see a significant difference until we see a turnaround in labor conditions.
"If negative expectations continue, perception will become reality, unless something happens to change."
