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Consumer’s Economic Mood, Colored by Gulf War, Tumbles to 10-Year Low

January 30, 1991

NEW YORK (AP) _ Consumer confidence plunged in January to its lowest level in 10 years, dragged down by failed attempts to resolve the Persian Gulf crisis, a widely watched survey showed Tuesday.

January’s drop marked a sharp decline from December’s number, reaffirming signs that the economy has slipped into recession, economists said.

But the report by Conference Board, a leading business research group, showed the drop in confidence was tempered by the burst of euphoria that followed the U.S.-led attack on Iraq Jan. 17.

″It was as though buyers were holding their collective breaths and gave a sigh of relief when the bombing began on the 15th,″ said Marshall B. Front, an economist and head of investment counseling for Stein Roe & Farnham, a Chicago-based investment and mutual-fund management firm.

The rush of optimism that followed the start of the war was based on feelings that the conflict would be short and the allies would be successful in forcing Iraq to leave Kuwait.

Subsequent signs have pointed to a longer confrontation, which economists said could force consumer confidence to resume the downward path it began in August after Iraq invaded Kuwait.

″If the war is bloodier than expected and should extend beyond the next 90 days, all bets on the economy are off,″ said Front.

″My feeling is in February we’ll probably see an increase from January’s low levels. But you’ll have to wait until the end of the war to see if really comes back,″ said Mike Penzer, vice president and senior economist at Bank of America in San Francisco.

The consumer confidence index of 54.0 in January, down from 61.3 in December, was only slightly above the figure recorded in the depths of the 1980 recession, the board said. The index is based on a benchmark of 100 set in 1985. The survey covers 5,000 households throughout the country.

Overall this month, more than one-third of survey respondents said they considered business conditions ″bad.″

In addition, just 19 percent said they expect their earnings to rise during the next six months, a drop of more than 3 percentage points from December’s figure.

Buying plans continued soft. Only 5.6 percent of consumers said they planned to buy a car during the next six months. The outlook on new home and appliance purchases was similarly bleak.

Fabian Linden, executive director of the board’s consumer research center, said a ″reasonably quick victory″ in the gulf war ″might well provide the psychological thrust to invigorate the economy.″

Economists agreed that whichever way it goes, the war would continue to exert a powerful influence on consumer buying patterns and income.

″If the general perception is for a more protracted conflict, people then would start to draw the conclusion that oil prices will increase from current levels. People will be less likely to spend on the big-ticket items,″ said Kathleen Stephansen, senior economist for Donaldson, Lufkin & Jenrette Securities Corp.

The Conference Board is a business-funded economic research organization headquartered in New York. The monthly survey is conducted for the board by National Family Opinion Inc. of Toledo, Ohio.

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