Transcripts

Consumer Confidence Reaches A New Low

SUSIE GHARIB: American consumer confidence is at record low tonight in the wake of the worst job market in 16 years. The Conference Board said today its consumer confidence index fell more than expected in December, down to 38 from 44.7 in November. News from the housing front wasn't any better. The S&P Case-Shiller index of home prices in 20 major U.S. cities plunged 18 percent in October. That was worse than forecast and continues the downward trend that began in January of last year. Consumers face a long list of negatives and as Suzanne Pratt reports, that's why many economists think a recovery won't come until late 2009.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It looks like 2008 will go down as one of the worst years ever for consumers. It began with declining home values, which knocked many Americans off balance. Sky- high gasoline and food prices dealt a one-two punch in the spring and summer months. Then a bear market for stocks leveled a serious follow-up jab. And finally, as the financial crisis deepened in the fall and many jobs vanished, consumer spending hit the ropes. But will consumers be down for the count well into 2009? Barclays Capital economist Julia Coronado says yes, at least through the first half.

JULIA CORONADO, SR. ECONOMIST, BARCLAYS CAPITAL: I think it's going to be a very slow improvement. And, I think in the very near-term, things are going to get worse unfortunately before they get better.

PRATT: That means consumer spending, which fell in the third quarter for the first time in nearly two decades is likely to remain negative at least until spring. UBS economist Jim O'Sullivan says worries about future income will top the list of consumer headwinds in '09.

JAMES O'SULLIVAN, SR. U.S. ECONOMIST, UBS: I think the big issue is the weakness in the labor market. We are clearly getting weakness in consumer spending effectively feeding on itself as weaker consumer spending leads to more job losses leads to weaker consumer spending and so on. So, right now the momentum looks pretty negative.

PRATT: Experts believe Americans will also hold back on spending next year, because they're trying to save, something they haven't done well in decades. The U.S. savings rate had been close to zero earlier this year and now many economists predict it could climb next year as high as 5 percent. Sharply lower prices at the pump will help consumers finance their savings. But, there's likely to be one other major tailwind in '09, namely lower mortgage rates.

CORONADO: I think in the first quarter of the year, we're going to see mortgage rates hit 4.5 percent pretty easily and that's going to give a lot of consumers the ability to refinance into lower monthly payments so that will be another source of relief.

PRATT: We care so much about the headwinds and tailwinds for consumers, because consumer spending accounts for two-thirds of the U.S. economy. A too frugal consumer suggests this recession may be deeper and longer than we think. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.