As cash-strapped consumers continue to be a contributing factor of poor liquidation rates for collection agencies, many of them believe their financial situation is worsening, according to the latest results of the Reuters/University of Michigan Surveys of Consumers.
The majority of consumers reported that their finances had worsened in October for the thirteenth consecutive month, which marks the longest and deepest decline in the 60-year history of the surveys. Some 12% of consumers cited income gains in the October survey, approximately one-third the level that reported income declines (32%). Furthermore, the majority of families expect their incomes to remain unchanged or to decline during the year ahead.
Despite the reported deterioration of personal finances and bleak income outlooks, consumer confidence has substantially improved from the lows recorded in late 2008, and consumers expect the economy to continue to recover during the year ahead.
"The ongoing economic recovery will be unlike any other due to changes in consumer spending preferences," survey director Richard Curtin said of the results.
Resurgent spending on homes, vehicles and other large purchases typically drive economic recovery, according to the report, and in the past, these spending preferences were "unleashed" as soon as the recovery began.
Consumers reported some improvement in the availability of mortgage credit in October, but they still held very negative views of selling their own home because of price declines. Consumers viewed car-buying conditions less favorable because of fewer discounts following the end of the cash-for-clunkers program.
Consumers now put debt reduction and increased savings at the top of their agendas rather than the quick resumption of postponed spending plans.
"These changed preferences are due to the extent of the financial reversals suffered by consumers, which spanned every aspect of their economic lives, as well as the widespread recognition among consumers that it will take years for them to fully recover," Curtin said. He estimated the growth of total personal consumption expenditures at just 1.6% during 2010, well below the typical rebound in consumer spending during the first year following a recession.
The Index of Consumer Sentiment was 70.6 in October, just below the 73.5 in the previous month, but substantially above the 57.6 recorded last October. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 68.6 in October, down from 73.5 in September, but significantly above the 57 recorded a year ago. The Current Economic Conditions Index rose to 73.7 in October, just ahead of the 73.4 in September and well above the 58.4 recorded last year.