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Consumer Mood Shattered

As storms, gas prices and fewer jobs come to bear on consumer sentiment, small businesses stay upbeat.
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Sept. 27, 2005--Despite a sharp decline in consumer sentiment this month, resilient small business owners aren't sharing the mood, economists and market analysts said.

"Deposits are up, loans are up, and the outlook is good," said Todd Rosin, a small business analyst at the Bank of America. "If confidence is down overall, we're still seeing all sorts of optimistic activity from small businesses," Rosin said.

Their buoyant attitude hasn't rubbed off on consumers. Dragged down by devastating storms, soaring gas prices and a weaker jobs outlook, consumer confidence plunged to a two-year low in September, the Conference Board reported Tuesday.

The weaker assessment echoes other consumer sentiment gauges released earlier this month.

The board's consumer confidence index, which rebounded to 105.5 in August, dropped to 86.6 for September, the sharpest decline in 15 years. Also down was the Present Situation Index, to 108.9 from 123.8, and the Expectations Index, to 71.7 from 93.3.

Lynn Franco, director of the board's Research Center, said the declines signaled a "degree of uncertainty and concern about the short-term future."

Sudden shocks, like Hurricane Katrina, usually have a short-term impact on consumer confidence levels, especially consumer expectations, Franco said in a statement.

"As rebuilding efforts take hold and job growth gains momentum, consumers' confidence should rebound and return to more positive levels by year-end or early 2006," she said.

Rosin agreed, adding that after the initial impact of the storm, small businesses would likely see an increase in business activity as they "ramp up" for a busy third and fourth quarters. "The long-term outlook is strong," Rosin said, "but small businesses will also play an essential role in the recovery effort, and that will mean even more activity."

The monthly survey, based on a sample of 5,000 households nationwide, found consumers believing business conditions are "good" dropped to 25.2% from 29.7 percent last month. Those feeling conditions were "bad" rose to 17.7% from 15.1%. Of those surveyed, 25.4% felt jobs were "hard to get" compared to 20.1% who said jobs were "plentiful." Fewer believed conditions would improve soon, with a full 19.8% said conditions would get worse.

Ian Shepherdson of High Frequency Economics, a New York-based economic analysis firm, said this month's sagging confidence was not wholly unexpected. "The awful images of Katrina and its aftermath, together with the brief but huge spike in gas prices, depressed confidence substantially," he said. Joining Franco and Rosin, he also forecast better conditions in the months ahead. "The key question now is how quickly it recovers," Shepherdson said in an online bulletin, "we are hopeful the October numbers will show a partial rebound."

Last updated: Sep 27, 2005




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