The student news site of Guilford College

The Guilfordian

The student news site of Guilford College

The Guilfordian

The student news site of Guilford College

The Guilfordian

Low consumer confidence suggests economic recession

U.S. consumer confidence is at its lowest level in 26 years, according to a University of Michigan survey. Recession fears combined with this sentiment have knocked the University’s index of confidence study down to 63.2 for April from 69.5 in March. It is just the latest study to show the sharp decline in consumer confidence in recent months.

This month’s figure is the lowest since March 1982, when it was 62.0 and the economy was deep in an economic downturn.

“There have only been a dozen other surveys that have recorded a lower level of consumer sentiment in the more than 50-year history of the survey,” said a spokesperson for the University of Michigan to BBC News.

The survey found that respondents were most concerned about constantly high fuel and food prices, as well as the rising unemployment rate.

The U.S. Conference Board’s index of consumer confidence, based on a monthly poll of 5,000, showed a decline in March to 64.5 from 76.4 in February.

These surveys are some of the many increasing indications of possible recession. The first signs came last summer when billions of dollars of bad debt in the U.S. housing market signaled the recent credit crunch.

“It’s really bad,” Carl Lantz, interest rate strategist at Credit Suisse in New York, said to Reuters News. “It confirms what we already know now that we are in a consumer-led recession, and it’s going to be a pretty protracted one.”

Banks are now less willing to lend to each other, businesses, and consumers, causing the credit crisis to spread to the wider economy.

Many economists point to the sub prime mortgage housing crisis as direct cause of low consumer confidence.

The subprime mortgage crisis triggered the current global financial crisis. The crisis began with the bursting U.S. housing bubble and high default rates on subprime mortgages made to higher-risk borrowers with lower income or lesser credit history than “prime” borrowers

“These kinds of things are part of capitalism,” said Bob Williams, professor of economics. “There is a certain level of prosperity and people take advantage of the situation”

However, once housing prices started to drop as early as 2006 throughout the United States, refinancing became more difficult.

“Confidence is down because the subprime housing mess has finally trickled down to the average consumer,” said William Vormelker, treasurer for next year’s Student Senate.

“When banks write off billions of dollars in losses, there is always an opposite and equal reaction in consumer spending,” Vormelker said.

The low consumer confidence combined with high fuel and food prices is now affecting retail spending, the bedrock of the U.S. economy.

Economists note that consumers do not always act in accordance with their statements to surveys.

However, Williams thinks a recession is inevitable.

“If consumers are as worried as they say, they’re going to cut back on spending,” Williams said

President Bush said last Thursday that the U.S. economy was in a “rough patch” but noted that steps have been taken to try to spur growth, according to Reuters News. The Federal Reserve has now cut interest rates six times since mid-September, in an attempt to alleviate the situation.

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