By: Daryl Tolliver
Fewer Americans expressed positive sentiments about economic recovery in January, as evidenced by the most recent Conference Board Consumer Confidence Index. The index declined from 64.8 in December to 61.1 in January, reversing a two-month trend of growing confidence in the economy.
Analysts say the dip was largely due to prolonged unemployment figures and negative business conditions. Consumers who agreed that business conditions are "good" declined from 16.3 to 13.3 percent, while those who believe business conditions are "bad" increased from 33.5 to 38.7 percent.
"Consumer Confidence retreated in January, after large back-to-back gains in the final two months of 2011," said Conference Board Consumer Research Center director Lynn Franco. "Consumers' assessment of current business and labor market conditions turned more downbeat and is back to November 2011 levels. Regarding the short-term outlook, consumers are more upbeat about employment, but less optimistic about business conditions and their income prospects. Recent increases in gasoline prices may have consumers feeling a little less confident this month."
Consumer confidence is a significant factor in consumer spending behavior, which accounts for roughly 70 percent of the economy. A recent study conducted by Javelin Strategy and Research reveals fewer Americans are relying on credit to make purchases, and are instead using cash in an effort to curb debt and safeguard their finances in tumultuous economic times. According to the results, 79 percent of consumers reported making cash purchases within the past seven days.
Analysts say the shift to cash is largely to escape the costly and confusing changes some banks have enacted as a result of the Durbin Amendment, such as debit fees. While debit cards remain a popular payment method, many consumers are trying to get their money's worth by switching to more advantageous rewards programs or dropping their existing banks to avoid debit fees.
"Consumers love their debit cards, but the majority would choose different payment options if they were charged a fee for using debit," said Beth Robertson, director of payments research at Javelin. "Our data shows that if [financial institutions] implemented debit card fees, 32 percent of consumers would choose cash as their payment option, 25 percent would pay with a credit card and 26 percent would switch to another bank that didn't charge for debit cards."