Oct. 29, 2004
High oil prices and lagging job prospects
diminish consumer confidence
ANN ARBOR, Mich.—Rising energy prices and concerns about the sluggish pace of job growth caused
consumer confidence to fall in the October 2004 survey.
“The overall decline in confidence was small as
consumers concluded by the end of October that the surge in gas prices was nearly over and their apprehensions
about future job growth lessened,” according to Richard Curtin, the Director of the University of Michigan’s
Surveys of Consumers. Consumers do not believe that the past levels of jobs or gas prices will be regained in the
near future. “Few consumers expect significant declines in energy prices anytime soon, and few consumers
anticipate the return of robust job growth during the year ahead,” Curtin said. The current middling level of
consumer confidence is strong enough to support growth of 3¼% in real consumption spending during 2005.
The Index of Consumer Sentiment was 91.7 in the October 2004 survey, between the 94.2 recorded in
September and the 89.6 last October. For the first time since the month before 9/11, the October survey marked
the twelfth consecutive month that the Sentiment Index was above 90.0. The Expectations Index, a closely
watched component of the Index of Leading Economic Indicators, was 83.8 in October, down from 88.0 in
September, and just above the 83.0 recorded in October of 2003.
Consumers less frequently reported hearing news of unfavorable economic developments in October,
especially reports of job losses. “Consumers expected the economy to improve rather than worsen during the year
ahead by more than a two-to-one margin in the October survey,” according to Curtin. Most consumers, however,
anticipated that the pace of economic growth will remain modest, and the majority expected the unemployment
rate would remain largely unchanged at its current level during the year ahead.
Consumers did report darkening clouds on the distant horizon. “Most of the concerns reported by
consumers in the October survey involved longer term economic prospects,” Curtin noted. Consumers voiced their
apprehensions about the health of the economy over the next five years, and for the first time in five months were
evenly split between a positive and negative outlook.
Consumers expected a year-ahead inflation rate of 3.1% in October, up from 2.8% in September, and just
below the 3.3% recorded in May when gasoline prices last topped $2 a gallon. Higher costs of home heating will
add to the drain on discretionary income this winter. “Consumers reported that their personal finances are already
stretched by higher gas prices, and have increasingly anticipated smaller gains in their living standards due to high
energy prices,” according to Curtin. While holiday spending will be diminished by these drains on discretionary
income, holiday spending should still post reasonable gains over last year.
Vehicle buying attitudes improved slightly in October as consumers cited their conviction that
manufacturers would continue to offer deep discounts during the year ahead. Home buying attitudes slipped as
consumers saw less investment potential and less reason to buy in advance of rising mortgage rates in the October
survey. “The data indicate that unit sales of homes and vehicles will remain at very favorable levels in 2005 but
fall slightly below the levels recorded during 2004,” Curtin concluded.
Surveys of Consumers:
Institute for Social Research:
Contact: Richard T. Curtin
Phone: (734) 763-5224