Consumer Confidence Plunges

The Conference Board reported Tuesday that its monthly consumer sentiment survey plummeted to 48.5 in September, its lowest level since last February. What's it mean for the state of the economy? Diane Swonk fills us in.
--Nelson Wang
Ongoing Uncertainty
Everything from poor labor market conditions to ongoing uncertainty about the future contributed to the September slump in attitudes. Indeed, consumer confidence is still trending well below the lows that were hit during the two previous recessions, which shouldn't be a surprise given how much higher unemployment is and uncertain the outlook relative to either 1991 or 2001. (It's kind of amazing -- the future feels more unstable and uncertain today than it did in the wake of the terrorist attacks of 9/11.)

Confidence Playing a Bigger Role in Spending
Usually, consumer confidence ranks low on the totem pole of economic reports, as consumers tend to spend in line with what they have or can borrow, rather than how they "feel" about the economy. That said, not much about the current economic environment is typical, and confidence (or lack thereof) is playing a much larger-than-usual role in determining whether or not consumers and companies spend, during the recovery. The saving rate, in particular, has risen fairly sharply over the last several years as consumers, shaken about their futures, cut back on their spending even faster than their incomes were disappearing. The timing of the most recent deterioration in confidence is particularly bad for retailers hoping for a brighter (and less discount-driven) holiday shopping season. Consumers are unlikely to dip into their saving by much, to tap the pent-up demand that has built in recent years, with confidence so low.
Impact on Fed Moves
The Fed is getting closer to pulling the trigger on additional easing, as noted in today's Wall Street Journal. Consumer confidence won't make or break that decision, but the fallout for retail sales could be decisive. The Fed could make an announcement about enlarging its balance sheet again, as soon as its next meeting in November. Its initial asset purchases are expected to be small -- in the $100 billion range (I forget: when did that get to be a small number?) -- but could easily rise to another trillion over the next year.

Diane Swonk, chief economist at Mesirow Financial, talks to CBS MoneyWatch twice a week about the day's top economic news and developments. Her responses are edited for clarity and length.