U.S. Consumer Confidence Dives In October Amid Budget War

Washington (AFP) – U.S. consumer confidence plunged in October amid the Washington budget and debt battle and the government shutdown, a report released Tuesday showed.

The Conference Board said its consumer confidence index fell to 71.2 in October, down from 80.2 in September.

“Consumer confidence deteriorated considerably as the federal government shutdown and debt-ceiling crisis took a particularly large toll on consumers’ expectations,” said Lynn Franco, the Conference Board’s director of economic indicators.

Analysts on average had expected a 73.1 reading, as consumers faced a daily knife-edge drama in Washington over funding the government for the fiscal year that began October 1 and raising the debt ceiling or risking the nation’s first default.

Thanks to the budget impasse between the Obama administration and Republican lawmakers, the federal government was forced to partially shut down for 16 days, furloughing hundreds of thousands of federal workers.

An 11th hour stopgap deal on the debt limit was struck in time to avoid the Treasury running out of cash to pay its bills, easing fears in financial markets around the world, and a temporary budget allowed the government to reopen October 17.

The compromise plan hashed out in the Senate and passed by the House of Representatives only funds the government until January 15 and extends U.S. borrowing authority until February 7.

“Similar declines in confidence were experienced during the payroll tax hike earlier this year, the fiscal cliff discussions in late 2012, and the government shutdown in 1995/1996,” Franco said.

“However, given the temporary nature of the current resolution, confidence is likely to remain volatile for the next several months.”

According to the Conference Board’s closely watched index, consumers’ assessment of current conditions declined moderately in October, to 70.7 from 73.5 in September.

But their expectations over the next six months plummeted to 71.5 from 84.7 last month.

Analysts said confidence may improve in November because the political crisis has been delayed, but cautioned that consumers would remain wary during the crucial year-end holiday shopping season.

“We may see a bounce-back in November confidence as the government reopened and more breathing room was given while the budget committee hashes it out. But as it stands, this is bad news for consumer spending,” said Jennifer Lee of BMO Capital Markets.