Confidence in the Economy Posts Its Biggest Drop Since ’92 : Indicators: The monthly decline in the widely watched survey is unexpectedly high. But not all analysts are worried.

Consumer faith in the economy plunged in June, suffering the biggest monthly fall in three years, according to a widely followed survey released Tuesday.

Although remaining relatively high, the Conference Board confidence index shows a third straight decline, reflecting a general view that the economy has weakened.

Still, economists, some of whom found the extent of the drop somewhat surprising, predicted that the Federal Reserve Board will not lower interest rates any time soon, even though financial markets are anticipating such a move.

Stock prices rose after the release of the confidence report. Bond yields initially fell, then recovered by the close.

“There’s no doubt that the economy has slowed down. [But] we think the underlying fundamentals support continuing growth,” said Daniel Seto, a vice president and economist at Nikko Securities Co. International. He suggested that the economy is in a transition.

The consumer confidence index, which was calculated from a nationwide survey of 5,000 households, plunged 9.2 points this month to 92.8, the biggest monthly decline since a 10.4-point drop in June, 1992.

The index stood at 101.4 at the start of the year and at 92.5 in June, 1994.

Fabian Linden, executive director of the Conference Board, a business research group, said the level of consumer confidence remained relatively high historically, though “the magnitude of the [recent] decline is somewhat disconcerting.”

The latest results show respondents were markedly less optimistic about both current economic conditions and in their expectations for the immediate months ahead.

Respondents were also less positive about current business conditions, with fewer believing that jobs were plentiful in June. Fewer expected more job opportunities to arise in the next six months or for their financial condition to improve.

The Conference Board survey is among the most widely watched indicators of the nation’s economic pulse. It is considered a useful barometer by some economists for anticipating the spending and borrowing patterns of consumers, who account for two-thirds of all economic growth.

Respondents are asked their views on financial subjects ranging from job availability to plans for buying homes and appliances.

William V. Sullivan Jr., a senior vice president and director of money market research for Dean Witter Reynolds Inc., said he was surprised by the latest results.

“No one had expected this sharp deterioration in confidence, partly since this erosion is in direct odds with other surveys that are widely available,” he said.

Sullivan cited a smaller poll by the University of Michigan that recently indicated consumer spirits were high.

“I think the vast width of evidence is in favor of the notion the economy is achieving a soft landing, but no evidence of a recession here,” he said.

Nikko’s Seto agreed: “We have none of the excesses that typically accompany a recession--excess consumer debt, inefficient corporate structure, real estate and banking problems.

“Fundamentally, there’s not enough justification for any Fed easing right now,” he said.

Last week, Fed Chairman Alan Greenspan acknowledged that signs of economic weakness suggested some “increased risk of a modest near-term recession.”

In recent weeks, there have been reports of rising unemployment, a widening trade deficit, fewer orders for factory goods and a relatively weak housing market.

However, Greenspan has left it unclear whether he favors a reduction in rates. The Fed’s Open Market Committee, which sets the direction of rates, is scheduled to meet next Wednesday and Thursday.

The central bank has tightened credit seven times since February, 1994, as part of an effort to slow the economy and thwart inflation by making it more expensive to borrow and spend.

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Confidence Sinks

U.S. consumer confidence index, from a monthly survey of 5,000 households. 1985=100

June 1995: 92.8

Source: Conference Board