Consumer Confidence Slipped in September

One of the key ingredients to the U.S. economy's strength has been consumers' persistent optimism about short and long term economic prospects. Through September, consumers remained more positive than the average level for any prior year, but confidence has been slowly declining since the first of the year. According to the University of Michigan's Survey Research Center confidence dipped again in September. This time the culprit seems to be a decline in consumers' assessments of their current financial situation, which fell to a three-year low. The drop was triggered by fewer households reporting gains in personal income. Net income gains were reported by 38% of all households in September, down from the peak of 46% in May.

Richard Curtin, Director of Michigan's Survey Research Center, notes that rising oil prices have yet to play a major role in consumers'downgrade of their personal financial situations. He thinks this leaves personal financial prospects more vulnerable to declines in the coming months if oil prices stay up and trigger corresponding increases in gasoline and other energy costs. "The growing constraints on discretionary incomes are likely to diminish the overall pace of growth in spending during the year ahead."

Despite the dip in current prospects, consumers remain extraordinarily optimistic about the next five years. Curtin writes, "rather than any concerns that hikes in interest rates or rising fuel prices would halt the expansion, two-thirds of all consumers, the most in the history of the surveys, expected continuous good times in the economy as a whole in the next five years."