WASHINGTON – Consumers' confidence has fallen dramatically over the past month, reaching a 16-month low, and economists say the political debate over revamping Social Security (search) probably is a major factor in the decline.
The AP-Ipsos consumer confidence index (search) sank to 79.1 in February, down sharply from 92.5 in January. February's showing was the worst since October 2003.
The latest reading on consumer confidence was taken after the State of the Union (search) address, where President Bush made clear his desire to overhaul the retirement program that pays out benefits to millions of Americans; the Federal Reserve raised interest rates for a sixth time since June and signaled higher rates in the future; and a government report that showed sluggish job gains.
The president's 2006 budget, which proposed numerous spending cuts but still would chalk up another annual deficit, came out as people were surveyed for the confidence index.
Each of those developments probably influenced consumers' psyches, economists said, but the debate over Social Security seemed to be central to February's decline in confidence.
"The level of rhetoric has been raised a couple of notches. It's been in our face every day that there is a problem with the Social Security system that requires some kind of major fix," said Joel Naroff, president of Naroff Economic Advisors.
"That's raising questions in peoples' minds about their future. It's raising questions about what people are going to get when they retire," he said.
The AP-Ipsos confidence index is benchmarked to a 100 reading on January 2002, when Ipsos started the gauge.
A measure of consumers' attitudes about economic expectations over the next six months, including conditions in areas where people live or work and their own financial positions, showed a steep decline.
That "expectations" gauge fell to 58.6 in February, compared with 79.6 in January and 89.2 a year ago.
"It is pretty clear that uncertainties with the Social Security system and future benefits are spooking consumer attitudes," said economist Richard Yamarone at Argus Research Corp.
February's overall consumer confidence index reading was based on results of a survey of adults about their attitudes on personal finances and the economy.
Results of that survey, conducted Monday through Wednesday, had a margin of error of plus or minus 3 percentage points.
In response to one question, people age 50 to 64 appeared gloomy about their ability to save money for retirement or for children's education. Fifty-four percent said they are less confident on that front, while 35 percent felt better.
Public confidence in Bush's job performance and in the nation's direction has slipped since the beginning of his second term on Jan. 20, with people 50 and older becoming increasingly unsettled, according to the results of the interviews.
A measure that tracks consumers' feelings about making a purchase, saving and other investment decisions declined to 80 in February, compared with 92.3 in January and 90.3 in February 2004.
A gauge of consumers' attitudes about current economic conditions dropped to 82.7 in February, a sharp drop from 96.3 in January but not far off the 89.2 level of a year ago.
A reading on consumers' sentiments about the jobs climate dipped to 107.5 in February. That was down slightly from 109.1 in January and 108.2 in February 2004.
"Job security and the income associated with it will be the keys to consumer confidence," said Tim O'Neill, economist at the Bank of Montreal.
He and other economists were hopeful that February's decline in overall consumer confidence would be reversed in March and will not translate into a retreat in consumer spending, the economy's lifeblood. "It may be that this is just the winter blahs," said Ken Mayland, president of ClearView Economics.