Almost alone among economic indicators, consumer confidence has plunged during the government shutdown and as the possibility of a default nears.
The economic confidence index updated daily by Gallup has fallen steadily since the summer and dramatically since the shutdown began two weeks ago. This week, it registered its lowest reading -- negative 41 -- since the debt ceiling standoff of 2011, suggesting that Americans expect conditions to rapidly worsen.
No other major economic indicators have fallen so dramatically.
Yields on 10-year U.S. Treasuries remain at 2.7 percent, below where they were in August, despite the threat of a default. The Dow Jones industrial average had risen for three straight days before falling 133 points Tuesday. The U.S. dollar has risen against a basket of currencies following the shutdown.
Yet the consumer confidence index is a different story, raising the possibility that it is out of sync with underlying sentiment — or, more ominously, that other economic indicators haven't caught up yet.
Eric Sims, a University of Notre Dame economics professor who has studied movements in consumer confidence, said that there are "pretty tight links" between survey responses and subsequent consumer spending patterns. "What they say is what they do," he said, adding that the drop in confidence has been "troubling."
In part, consumer confidence reflects Americans’ reactions to ongoing economic trends. But there’s another component that reflects consumers’ uncertainty over news, according to Marta Lachowska.
In a study of daily Gallup polling in 2008 released this year by the W.E. Upjohn Institute, Lachowska, found that movements in daily confidence indices, independent of other economic indicators, lead to "very short fluctuations in consumer spending." That's because consumers are risk averse, Lachowska told the Washington Examiner, and they tighten their budgets in reaction to bad news.
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