Downturn Pummels Consumer Confidence

Whirlpool said yesterday it will cut 5,000 jobs and close a Tennessee plant.
Whirlpool said yesterday it will cut 5,000 jobs and close a Tennessee plant. (By Justin Sullivan -- Getty Images)
By V. Dion Haynes
Washington Post Staff Writer
Wednesday, October 29, 2008

Consumer confidence dipped to its lowest level on record as Americans reacted with growing pessimism to financial uncertainty and widespread job losses, according to a survey released yesterday.

The sentiment found in the survey was reinforced by more bad news in the retail sector -- layoffs at the world's largest appliance manufacturer and decreased consumer spending at rental car, athletic apparel and other companies. Locally, there were also indications that more Washington area employers will be cutting jobs.

After increasing slightly in September to 61.4, the consumer confidence index fell more than 23 points to 38.0, the worst assessment of the nation's economic health since the Conference Board began conducting the survey in 1967. A rating of 90 or above indicates that consumers see a strong economy.

Even relief at the gas pump -- with prices falling to a national average of $2.63 from a peak of $4.11 in July -- has not offset the gloom. For analysts, the survey from the private business research firm offers more evidence that the holiday season will be dismal and leaves little doubt that the country is entering a prolonged period of negative growth.

"Drops of this magnitude take place during recessions," said Lynn Franco, director of the board's Consumer Research Center, noting that two of the previous lowest readings occurred during economic slowdowns in October to December 1973 and December 1969 to February 1970.

Consumers, Franco said, report that they're taking big hits in their investment and retirement funds and expect that the employment outlook will worsen. They believe that "an already weak economy appears to have weakened further," she added.

In its report on consumer confidence, based on a survey of 5,000 households across the United States, the Conference Board said that 38.3 percent of the participants rated business conditions as bad this month, compared with33.4 in September. Only 9.2 percent rated business conditions as good, down from 12.8 percent last month.

Reflecting the sagging housing market and the reduced demand for appliances, Whirlpool announced that it will shed 5,000 jobs and close a plant in Jackson, Tenn. "The global credit crisis has had a profound negative impact on what was already a weakening and very fragile global economy," Jeff M. Fettig, Whirlpool's chairman and chief executive, said in a statement. "Declining home values, rising unemployment and very low consumer confidence levels will likely prolong a negative demand environment at least through the middle of 2009."

Cars, cruises and cosmetics were all affected. Avis Budget Group and Royal Caribbean Cruises said they were hit by a decrease in consumer travel. The rental car company, which said it had cut 700 jobs to save money, revised its outlook downward because it expects lower demand. Royal Caribbean reported that it expects fourth-quarter yields to drop as much as 5 percent because of a "significant deterioration" in new bookings.

And with consumers increasingly shunning nonessential luxury items, such as athletic gear, cosmetics and housewares, Under Armour, Estee Lauder and Tuesday Morning lowered their earnings and sales projections. While Under Armour reported that profit increased 28 percent in the third quarter, the Baltimore-based company foresees weak holiday sales and lowered its 2008 outlook.

"When consumers are going through rough times, they are going to spend on the necessities and not the extras," said Peter I. Cardillo, chief market economist for New York-based Avalon Partners.

Cardillo added that the economy is in a vicious cycle. News of corporate economic problems make consumers feel squeamish about spending. That, in turn, "shows up in less products being sold and companies posting negative earnings in many cases," he said.

Because of its heavy reliance on the federal government, the Washington region traditionally has been shielded from sharp economic declines experienced in many areas of the country. But a survey released yesterday by a human resources organization reflected increasing signs of economic weakness here: A growing number of employers in the region are projecting reduced raises and more job cuts in the coming year.

Thirteen percent of the 206 organizations that participated in the survey, prepared by the Human Resource Association of the National Capital Area, said they would cut jobs next year through layoffs and attrition. In the previous three years, 9 percent, 7 percent and 5 percent of the respondents said they would do so.

Moreover, one-quarter of the employers said they would decrease the size of raises offered their workers in 2009, compared with 15 percent that made that projection in 2007. While 25 percent said last year they would offer a larger raise in 2008, only 21 percent said they would do so in 2009.

"People are starting to hunker down," said Angelo Kostopoulos, president of Akron Inc., a data and survey firm based in the District, which conducted the survey. "People are starting to realize we aren't unaffected."

© 2008 The Washington Post Company