The confidence of U.S. consumers, whose high levels of spending this year helped prevent the economy from sliding into a recession, is starting to sag. On Sept. 24, as the stock market staged its first rally since opening after the terrorist attacks in New York and Washington two weeks ago, the Conference Board in New York said its consumer confidence index fell to 97.6 this month from 114 in August – its lowest level since January 1996. The 16.4 point slide represents the largest monthly drop since October 1990.

Is this a flash in the pan or an indicator of the shape of things to come? The blunt truth is that this has been and continues to be an unprecedented chapter in American history. And any predictions of how consumers will respond to the bombings must take that into account. Wharton marketing experts and industry professionals stress these two themes repeatedly in their comments on how the terrorist attacks will affect consumer confidence and spending in the months to come.

Marketing professor Stephen J. Hoch points out that consumer confidence was not exactly rock-solid before September 11, as the economy coped with technology stock sell-offs, wide-spread industry lay-offs and market reports that consumers were already tightening their belts and incurring less debt. “Now people are literally and figuratively hunkering down. For everyone, there is a huge point of uncertainty.”

Though Americans have rallied in spirit, song and flag waving, Hoch suggests that businesses will be “very reticent to push the ‘Buy American’ theme too hard. I don’t think that they can actually run their business by being isolationists, if they want to continue to charge low prices every day. People want to be patriotic, but engaging in an effort [like ‘Buy American’] seems tawdry and opportunistic.”

Some consumer spending or lack of spending, he predicts, will be governed by the approach, “Why do it now?” A dramatic drop in airline travel, Hoch says, offers a perfect example of “people saying, ‘Do I have to do that? Do I really have to be staring across the table at my customers, or can I have a surrogate experience that’s just about good enough? Is there a peer video conferencing place?’ Despite all the technology, business people continue to travel and travel and travel, because it gives them a bit of an edge. Now, they may be rethinking that edge.”

Roger N. Farah, president and COO of Polo Ralph Lauren, believes that customers will rein in their spending. “I’m not talking about food and some of the basics, but discretionary purchases for the near term will be put on the back burner. The uncertainty of what will happen now will cause customers to become more cautious.”

Farah predicts that dollars once spent on discretionary items will be channeled into avenues like philanthropy or buying increased means of security. At Polo Ralph Lauren, Farah says he will be reviewing advertising and capital spending. “Any new hires will be put on the shelf,” he adds.

Marketing professor David C. Schmittlein, however, cautions that “consumer confidence as it translates to spending isn’t a simple indicator. Consumers do not feel confident at the moment in a variety of respects. What that will lead them to do with regard to spending and saving depends on what kind of spending and saving you are talking about.”

For example, consumers may respond to the call for keeping the economy on track if the message is “carefully articulated,” Schmittlein says. The message might be that “the right thing to do, for your friends, your family, for the waiters who are American, is to keep our society going and this is how you do it: You go out and have dinner. Make sure to have a moment of silence before dessert, but order dessert. This patriotism in spending is reflective of New York Mayor Giuliani’s comment: ‘If you are thinking about coming to New York and spending money – come.’ That’s a patriotic act. And I think there is a possibility for that.

“You do want to acknowledge that while this situation is unprecedented, we are a country that tends to move on quickly,” Schmittlein adds.

Wharton marketing professor Robert Meyer suggests that if history is any guide, consumer confidence will go down. The Gulf War, for instance, “was attributed to fostering the early 1990-91 recession” and it caused people to be concerned about where the economy was going. And when consumer confidence diminishes, people no longer buy based on their expectations about their earnings; they buy based on their income levels, particularly when it comes to durable goods. It becomes a self-fulfilling prophecy, Meyer says. Consumers don’t think their earnings are going to be good, so they withhold buying. This slows down the economy, which fosters and exacerbates the problems.

“We are in a similar situation now, where the economy had been going down for a while and consumer confidence had begun to erode severely,” Meyer says. “Now this event will cause that to catapult further.”

Like other experts, however, Meyer offeres this caveat: The bombing of New York and Washington “is a completely unique circumstance. It’s difficult to draw a clear analogy between this and the Gulf War, because so far it’s a single, very dramatic event, which is profoundly upsetting to people. How will it get translated? Confidence was already slipping pretty badly. You wonder if there is a natural floor on how low consumer confidence can go.”

Even though Federal Reserve Chairman Alan Greenspan has stressed that the country’s long-term economic prospects remain strong, Meyer believes that individuals tend to reflect and focus on the most recent news that’s happening around them. “A lot of what drives consumer confidence is not some dispassionate, analytical sense of what is happening, but a reflection of the most recent things happening in the economy and the news,” Meyer says. “To the degree that consumers read that the stock market is going down, and their retirement accounts are dwindling, and the economy is slowing, these are the things they are going to report back when asked to give their predictions. It’s very, very difficult to look around and see the good news upon which people could extrapolate. When consumers are nervous about the future, their natural reaction is to hold back.”

Marketing professor Peter S. Fader, a self-professed optimist, questions the “validity of consumer confidence measurements in the first place. I don’t think it’s a very good barometer about what people do. I think there is a need to separate out what people will do vs. what they say they will do.”

The events of September 11, Fader said, are unprecedented – not only in the loss of life in New York and Washington but in the way the bombings have “shaken up the day-to-day events of people’s lives across the country. It’s impossible for people to say what they are doing to do. I reject any effort to ask people to project spending and behavior … There is no one to say, ‘The last time I faced this situation, I did x, y, and z.’ It’s a whole new world.”

Fader’s optimism extends beyond consumer spending. He suggests that the recent rounds of layoffs, particularly in the airline and transportation industries, will result in a “shift from one sector to another,” such as a big boost in technology spending. “There definitely has been a loss in value in economic means, but the question is, ‘What is the magnitude?’ Perhaps it won’t be too severe. Perhaps people will work harder to fill that gap.”

Brandon Hoffman, vice president of Neiman Marcus Outlet Division, does not share Fader’s optimism. “We are bracing for the worst at this point,” he said. “We are so used to looking to the past to see what will happen in the future, and this is so unprecedented. No one knows where to look for anything to base this on.”

He’s certain of one thing, however, “Shopping doesn’t seem to be anyone’s priority right now. When you think about going out to buy a new pair of shoes, you feel guilty. Money can be better spent donating to the relief efforts for the victims. And though I think there is still time for us to get back to normal patterns before the holiday seasons, I’m not sure of anything. When the Christmas season comes around, I can see people making donations in their loved one’s names as opposed to buying traditional holiday gifts.”

Hoch agreed. “People spend money at Christmas time, and they do it for a lot of different reasons. Part of it is anticipating celebration, and there is nothing to celebrate here. People will make the decision (on whether to spend money) on the margin. It takes effort to go and spend money. People are allocating a lot of effort to coping and getting on with their lives, and they may be hard pressed to engage in a big search for a car or a washing machine or anything like that.”

Meyer notes that these reactions are “all short-term consumer responses. What will happen in a few weeks from now, I’m not so sure. In a month from now, if things seem to be going better, if people are back into their daily routines and the football season is rolling along and the stock market appears to be stable and there are no more terrorist attacks, those are the types of news events that people will be focusing on. You may then see a rebound in consumer confidence.”