Lower Income Americans Lose Confidence in Economy

17 February 2004

The University of Michigan's index of consumer sentiment fell unexpectedly in early February, confounding economists' expectations of a marginal rise. The drop was at its most notable among lower income households.

The index dived an overall 10% to 93.1 -- and half as far again among less-affluent families (annual income below $50,000) -- falling to its mid-2003 level. Conversely, sentiment slipped only 7% in families with incomes over the $50k mark, still near to its recent high.

Richard Curtin, director of the UoM's consumer surveys, commented that media coverage of the Democratic primaries and the candidates' focus on jobs and outsourcing appears to have "struck a more sensitive chord" with moderate-income families.

Such households have in recent years had more cause to worry about job losses, although he expects that as the media spotlight on the primaries fades, confidence will recover.

The sub-index of consumer expectations also fell, dropping to 88.4 from January's 100.1; at the same time the index of their views of current conditions dropped to 100.4 from 109.5 a month earlier. However, these are interim data based on a smaller sample than the full-month survey released at month end.

• Separately, Federal Reserve chairman Alan Greenspan observed at the weekend that the diving dollar has as yet impacted little on import prices, attributing this to importers' currency hedging and deferral to narrower profit margins.

The surprisng stability of import prices was also evidenced by the Commerce Department's report released Friday. This revealed the US trade deficit soared by more than 10% in December to $42.48 billion (€33.24bn; £22.47bn) -- its widest since March -- from November's final figure of $38.35bn. Exports of goods and services fell 0.2% to $90.37bn, while imports jumped 3% to $132.85bn.

In 2003 as a whole, the trade deficit climbed 17% to $489.38bn; and although the imbalance with China fell in December, it still hit an eyewatering $123.96 billion for the full year.

Data sourced from: The Wall Street Journal Online; additional content by WARC staff