Consumer confidence drops to 10-year low, survey finds

January 30, 1991|By Los Angeles Daily News

Concern over the Persian Gulf crisis drove U.S. consumer confidence in January to its lowest point in 10 years, according to a survey.

But the New York-based Conference Board said yesterday that its survey indicated confidence could quickly rise if the Mideast war ends soon.

Consumer confidence fell sharply in the first part of the month, but picked up slightly after war in the Persian Gulf broke out because of early indications that the conflict would end quickly, said Fabian Linden, the board's executive director.

"Last month's drop in confidence probably can be attributed almost entirely to the crisis in Iraq," Linden said. "A reasonably quick victory might well provide the psychological thrust to invigorate the economy."

Nationally, the index stood at 54, down 11.8 percent from 61.2 in December and only slightly above the level reported during the depths of the 1980 recession.

Better than one-third of the survey respondents described business conditions as "bad."

In addition, 19 percent said that they expect their earnings to rise in the next six months, a drop of more than 3 percentage points from December.

The Conference Board poll showed that consumer confidence in the West is still more buoyant than in other parts of the country. However, it is falling faster than anywhere else in the nation.

The poll shows that the consumer confidence index in the Pacific region California, Oregon, Washington, Alaska and Hawaii fell to 67.8 for January, down 15.3 percent from December's level of 80.

In March 1990, the Pacific region's index was 139, compared with 110.6 nationally.

In the most recent survey of 5,000 households nationwide the Conference Board contacted respondents from Jan. 1 through 28. The survey translates positive and negative responses into numerical values. In the base year of 1985 the index was at 100.

Consumer confidence in California is generally higher than in other parts of the country because the state has a more stable, broad-based economy, said John Golisch, partner with Arthur Andersen & Co.

"But the industries here have felt the downturn more severely," Golisch said, noting problems in housing and aerospace. "That is why there was a more significant percentage decrease while the rest of the country has bottomed out."

Most economists agree that whether consumer confidence picks or continues falling depends on how quickly the Persian Gulf war ends. "The length of the war is critical," said Phillip Vincent, an economist with First Interstate Bancorp in Los Angeles.

If there is an end in sight within three to four months, the recession will be short and shallow, with a recovery starting in the second quarter, he said.

But if the war drags on for six months or more, economic growth will be weak for the rest of the year. The military's need for spare parts and equipment would only modestly slow down the shrinkage of the defense industry in California, Vincent said.

Meanwhile, consumers' buying plans are being put on hold. The survey reports that 5.6 percent of consumers nationally intend to buy a car in the next six months, compared with 6.2 percent in December.

Intentions to buy a home are slightly lower this month at 2.5 percent.

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