10 31 2013

10 31 2013

Consumer Confidence Takes A Dip

Two recent polls from Gallup indicate a drop in consumer confidence.

Gallup’s U.S. Economic Confidence Index – based on a daily telephone poll of approximately 1,500 adults – has been decreasing since the end of September. The index, which peaked at -1 in late May and hovered around -13 during the summer, dipped to -35 in early October.

The index is based on responses of two questions. The first asks respondents to rate current economic conditions and the second question is whether the economy is getting better or worse. From the two, Gallup determines an index value that ranges between +100 and -100, the former being the maximum consumer confidence and the latter being the lowest.

Since polling began in 2008, the index value has been confined to ranges below zero. Confidence peaked at the start of the summer this year, with the negative value being in the single digits for several weeks. In September, however, confidence began to slip. During the first week of October, the index dropped 12 points from the prior week. This marked the biggest dip since Lehman Brothers filed for bankruptcy in September 2008. Possible explanations are a ripple effect of the government shutdown, or concern over the debt ceiling deadline.

Spending is down

Low confidence has been met with less spending. According to Gallup’s self-reported survey, average daily spending decreased from $95 in August to $84 in September. The amount excludes major purchases like cars and normal household bills. A dip from August to September is generally expected, reports Gallup, but this year’s decrease was significant. The two previous years saw a decrease of only $3. This year’s decrease, at $11, is nearly four times greater.

A decrease means Americans are spending less on goods and services, which could be bad news for small businesses involved in retail and entertainment, among other industries that rely on consistent consumer spending.

When coupled with low consumer confidence, the decrease in spending suggests that consumers’ concern about the economy is leading them to cut their budgets. The budget crisis on Capitol Hill may be one such cause for concern. Consumers, influenced by the fiscal uncertainty surrounding the federal debate, could be responding with thriftiness.

Small businesses that are feeling the effects of lowered spending can obtain alternative financing to solidify operation. National Funding, a small business lender, offers a variety of loans that can help businesses until the spending resumes. Retailers should consider obtaining a merchant cash advance to fund improvements before the holiday rush. Fall is a vital time to make improvements – businesses should not let recent setbacks stall their plans.

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