Consumer confidence is a measure of how optimistic or pessimistic consumers are about the economy. The most recent report of The Conference Board, a private research group based in New York City, said its Consumer Confidence Index for September was nearly five points below the August reading. The revised number for August was 81.7 and the recently reported September reading was only 76.8. Earlier, analysts expected a reading of 80.5 for September.

Consumer confidence is a powerful determinant of consumption spending. The more confident consumers are, the higher consumption is likely to be for any given level of GDP. This most recent finding of a steep decrease in confidence suggests that consumers are likely to be holding back on spending in the near future, resulting in a fall of economic activity in general. For retailers this could mean a downtrend in spending throughout the all-important holiday season, which traditionally begins in October. One Florida consumer, Cheryl McBride, has been shopping for a new car. "We are shopping it to death," she said. "We want to make sure we get the best deal available." This thinking reflects the results of one component of the index: whether or not it's a good time to purchase a "big-ticket" item. This component fell by seven points according to The Conference Board research.

Strong consumer confidence has been a key element in keeping the economy afloat ever since the September 11, 2001 attack and the ensuing recession. However, increased uncertainty about the war efforts and the inability of the job market to make a complete turnaround has served to dampen that confidence. "The lack of improvement in labor-market conditions continues to dampen consumers' spirits," said Lynn Franco, director of The Conference Board's Consumer Research Center."

With consumer spending making up about two-thirds of all spending in the economy, it is vitally important to the economic recovery for consumer spending to flourish. For this reason, economists at The Conference Board will continue to watch this measure of consumer optimism or pessimism and gauge its effects on the economy, because any reservations about an economic recovery are likely to result in a slow holiday shopping season.

(Updated October, 2003)