Consumer Confidence Drops Unexpectedly

A key measure of consumer confidence unexpectedly eroded for a fifth consecutive month in November, as Americans continued to worry about their jobs amid the first recession in a decade.

The decline raised fresh concerns about the economy’s ability to stage a recovery, though many analysts said a rebound still is likely sooner than later.

A consumer sentiment index compiled by the New York-based Conference Board fell to 82.2 this month from 85.3 in October and now is at the lowest level in more than seven years, the private business group said Tuesday.

Many analysts had expected the gauge to rise, reflecting strength in several other economic indicators recently.

But the index was yanked lower by consumers’ declining perceptions about the current economy. The index’s so-called present-situation component sank to 93.5 from 107.2 in October.

The other major component, which measures expectations of future economic conditions, rose to 74.6 from 70.7.

Because consumer sentiment is tied closely to labor-market conditions, the drop in the index underscores the concern that many Americans have about keeping their jobs, experts said.

Some economists dismissed the drop in confidence, saying consumer sentiment is a lagging indicator--meaning it measures reactions to previously reported bad news.

Others, however, said sagging confidence points up the precarious condition of the labor market and, hence, of the economy. If layoffs continue to mount, many consumers’ willingness to spend almost certainly would drop, thus delaying an economic rebound.

“The fact that confidence is still going down eight months into a recession raises [questions] about how long the recession will last and throws cold water on the sentiment that the recession was over almost as soon as it was identified,” said Alan Levenson, chief economist at mutual fund firm T. Rowe Price.

According to the Conference Board’s survey of 5,000 U.S. households, 23% of those polled said jobs are hard to find, up from 20.6% last month.

As for overall business conditions, 21.4% of those polled described them as bad, up from 20.7% in October.

The release of the confidence data followed by a day the pronouncement that the U.S. economy is officially in recession. On Monday, a group of academics that serves as the arbiter of U.S. economic cycles declared that the economy slid into a recession in March.

Some economic data in recent weeks have raised hopes that the downturn is almost over and that a recovery may be near. But the confidence report is a reminder that it may take some time for growth to resume, analysts said.

“We’re not out of the woods,” said Jan Hatzius, an economist at Goldman Sachs Group in New York. “There’s a risk that this recession may last longer than a lot of people think.”

Still, optimists point to some signs that the worst of the decline may be over. New claims for jobless benefits have fallen for four consecutive weeks, and an index of leading economic indicators rose in October after sliding in September.

The retail-sales picture has been mixed, though generally it has not been as bad as some had feared. Over the Thanksgiving weekend, U.S. same-store retail sales rose 2.3% compared with the same period last year, according to TeleCheck Services Inc., a check acceptance company.

The sales increase was no doubt propelled by heavy discounting by retailers. But “the fact that people responded is a good sign,” said Jim Glassman, senior U.S. economist at J.P. Morgan Chase & Co.

What’s more, sales of cars and houses also have remained strong, thanks to lower interest rates.

On Tuesday, two Federal Reserve officials indicated the central bank may continue to cut its key short-term interest rate--already at a 40-year low of 2%--if necessary to bolster confidence and foster a recovery.

In separate speeches, Laurence Meyer and William Poole, both of whom are voting members of the Fed’s policymaking board, said the central bank stands ready to cut rates again.

“The only stopping place that I see is zero, and if going to zero is constructive, then we ought to do it,” Poole told reporters after a speech in St. Louis, according to Reuters.

Consumer spending accounts for two-thirds of economic activity and has played an especially critical role in the last year. Even as declining spending by businesses helped drive the economy into recession, steady activity by consumers kept the downturn from being far more severe.

Some economists believe that consumer spending, though clearly off its highs, will remain solid in the near term. They point to such factors as lower interest rates, falling energy prices and an unemployment rate that, though rising, still is low compared with past recessions.

“From a long-term perspective, the average American household is still quite well off,” Glassman said.

Optimists also point out that lackluster consumer confidence hasn’t held back economic recoveries in the past. The confidence index bottomed at 47.3 in February 1992, even though a recovery officially had begun the previous year.