War Clouds, Economy Worry Consumers

Consumers are getting more anxious about the possibility of war and the weak economy.

The University of Michigan consumer sentiment index slid in late January, falling to 82.4 from 86.7 in December. The preliminary January reading was 83.7.

Consumers were actually a bit more upbeat about their current financial situation. The current conditions index rose to 97.2 in January from 96.0 in December and 96.9 in early January.

But the expectations index fell to a nine-year low of 72.8 in January from 80.8 in December and 75.2 in early January, dipping below the levels seen in September 2001 and in October 2002.

Consumers are mainly concerned about their jobs and incomes at this point, but war worries are building, researchers said. It's hard to disentangle economic and war worries, they indicated.

A quick and decisive victory against Iraq could restore confidence almost immediately, but if economic conditions do not improve, confidence would probably collapse again, just as it did following the Gulf War, they said.

Expectations for inflation remain low, suggesting that consumers are not concerned that energy prices will spike during hostilities.

Consumers believe jobs will remain scarce for the foreseeable future and they don't have much confidence in government policies to improve the economy. President Bush's proposed tax cuts won't boost hiring or incomes, consumers believe.

For the first time in his two years in office, Mr. Bush does not have a majority supporting his economic policies, researchers said.

Despite the poor prospects for growth, consumers judge current buying conditions for homes and autos very favorably. But other consumer durable goods, such as furniture and electronics, aren't getting a boost from the current low interest rates.

In other economic reports released Friday:

  • The Commerce Department said consumer spending rose 0.9 percent in December as spending on durable goods expanded. Personal incomes rose 0.4 percent.
  • Factory conditions may be improving, if the early reports from the Chicago region hold true across the nation. The Chicago purchasing managers index rose to 56.0 percent in January from 51.7 percent in December. Readings over 50 percent indicate expansion.