The University of Michigan U.S Confidence index was released today reporting a drop to 54.9 from 63.7. Despite an expectation for the index to drop to 63.2, this was a much larger than expected fall.
The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like new vehicles and household appliances.
The index is now at its lowest level since May 1980, adding to concern that weak employment gains and volatility in the stock market will prompt consumers to cut back household spending even more, which will cause a domino effect and slowdown U.S. manufacturing, and consequently U.S. economic recovery.
The biggest one-week slump in stocks since 2008 and the downgrade of country’s top credit rating may be exacerbating consumers’ concerns as unemployment hovers above 9 percent and companies are hesitant to hire. Rising pessimism poses a risk household spending will cool further, hindering a recovery that Federal Reserve policy makers said this week was already advancing “considerably slower” than projected.