Lawmakers’ Lack of Governance Has Minimal Impact on Confidence

Are Americans so accustomed to the ineffectiveness and triviality of Congress that the threat of a third week with essentially no governing body barely registers a blip on consumers' confidence scale?

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Even with a drop that put its preliminary October reading at a nine-month low, the University of Michigan's Index of Consumer Sentiment was better than many analysts were expecting.

The index plunged to 75.2 in the mid-month report, down from 77.5 at the end of September. Economists surveyed by Reuters expected a preliminary value of 76.0.

Still, with the current situation in Washington, October's numbers aren't so bad, says Amna Asaf, economist for Capital Economics.

""Given the impact of the ongoing government shutdown on some other measures, the modest decline in the

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University of Michigan's index of consumer confidence … was comforting,"" Asaf said. ""We suspect that a combination of lower interest rates and gasoline prices helped to offset some of the negative impact from the shutdown.""

The fall in the headline index was due entirely to a drop in consumer expectations. The Surveys of Consumers' Index of Consumer Expectations fell to a 2013 low of 63.9 from September's 67.8.

While the index's value ""is now consistent with a sharp slowdown in consumption growth in the fourth quarter,"" Capital Economics doubts that will happen, noting ""declines in sentiment don't always translate into falls in actual spending.""

Meanwhile, the Current Conditions Index was more or less flat at 92.8 (compared to 92.6 in September).

While October's preliminary reading was something of a relief, there's every chance the final report will show a more significant decline in confidence.

""Overall, while it's a bit of good news that confidence didn't fall by a whole lot, the preliminary reading of the University of Michigan Index has been relatively optimistic over the past year,"" Asaf said. ""We won't be surprised if the final estimate (to be released in two weeks) will show a much bigger drop, as more recent survey responses are included.""

If, however, Congress can reach an agreement on handling the debt ceiling this week, ""then presumably confidence will rebound a little.""