Consumer Confidence Falls, Small Business Rises
BY Angus Loten
August 26, 2005--Despite reports of sagging consumer confidence in a national survey released today, small business owners and operators remain optimistic about third-quarter sales.
The Michigan Consumer Sentiment Index, or MCSI, put consumer confidence for August at 89.1, sliding from highs of 96.5 for July and 96.0 for June, but above an 86.9 reading in May.
The results, below projections released earlier this month, were blamed primarily on record-high fuel costs this summer eating into household savings.
The survey's gauge of consumer expectations was also lower than previous months, dropping to 76.9 from 85.5 in July. Also down were views on economic conditions, from 113.5 in July to 108.2.
By contrast, figures released in July by the National Federation of Independent Businesses offer a much brighter outlook.
Anticipating a strong third quarter, the monthly NFIB Small Business Optimism Index for July saw improved profits boosted by stronger sales, with growth expected well into August.
Six of NFIB's ten index components were up last month, including plans to create jobs and replenish inventories, and expectations of higher real sales and easier credit. Figures for August were not yet available.
"There's a lot of bad news out there about energy, and energy costs are high," said William Dunkelberg, the NFIB's chief economist. "But I don't think the decline in sentiment will foreshadow a decline in spending," he added.
In the months ahead, Dunkelberg expects job creation to remain solid, the unemployment rate to fall below 5%, and capital spending to be strong, but "not spectacular."
The Michigan Index is "all about spending expectations," Dunkelberg said. "My guess is that our numbers will stand."
The MCSI, released by the University of Michigan as a preliminary report early each month and a final report at month's end, offers a snapshot on how consumers feel about spending. Consumer spending is a vital economic indicator and accounts for about full two-thirds of the U.S. economy.