The consumer-confidence index, compiled by the research firm Conference Board, fell for the third straight month in December. The most negative indicator out so far is retail spending, which seriously slumped over the holidays. Weak PC sales and a downturn in auto sales also have led to poor earnings announcements or warnings from major companies such as Apple, Dell, General Motors, and Ford. These industries were gearing up for demand that failed to materialize. And because the economic slowdown happened so suddenly, they had less time to throttle back on fourth-quarter spending.
Companies are likely to continue to blame poor fourth-quarter results on slower consumer spending.
The psychology of spending just feeds on itself. But investors may be right to shake off the bad news, as the recent uptick in the Nasdaq shows most clearly. Because consumer sentiment is somewhat ephemeral, the current negativism is reversible. Auto manufacturers are already bracing for drops in car sales, and that could affect related industries. But after consumers mentally adjust to the weaker stock market and higher energy bills, they'll be ready in a few months to go ahead with spending plans, such as buying a new car or doing spring home-improvement projects, some consumer behavior experts believe.