Consumer Comfort

How comfortable are consumers with letting go of their money at this point? The ABC News/Money Magazine index showed declining consumer comfort this week

With the surge in job creation, the number of people who think that the economy is doing well increased marginally. The positive tone in the September employment report was likely sensed by consumers who increased their assessment of the national economy.

Only 36% think it is a good time to make purchases. This is the lowest level recorded since mid-May. The chief culprit is the slowdown in cash flowing to customers. In July and August, consumption received a boost from the inflow of mortgages and tax rebate checks. Much less cash from refinancing is now flowing to consumers and further benefits of tax cuts will not be felt until January 2004.

Declining earnings is another factor that could be depressing the buying climate. The average hourly earnings fell by one cent to $15.45, marking the first time since 1989 that earnings dropped. While the decline may prove to be an aberration, earnings growth has been weak for some time. If maintained, declining earnings will hamper purchases.

Looking ahead, an improving national economy will create more jobs, though only gradually. This will contribute to a slow improvement in consumers' assessment of the economy. However, dwindling cash flow may mean that the buying climate will remain gloomy. Hence, improvement in confidence above its recent band will be slow in coming.