Consumer Confidence Plunges to 7-Year Low

Americans’ growing fears about anthrax and job security after the Sept. 11 terrorist attacks dragged down consumer confidence in October to the lowest level in 71/2 years, suggesting the economy will take longer to rebound.

The New York-based Conference Board said Tuesday that its consumer confidence index plunged to 85.5 from 97, well below the 96 reading analysts had predicted.

“We obviously expected consumer confidence to be shaken, but not this badly,” said Oscar Gonzalez, an economist at John Hancock Financial Services in Boston. “This is a very worrisome report.”

Stocks closed broadly lower on the news while Treasury bond yields fell, with some bond issues hitting record lows.

The index, based on a monthly survey of about 5,000 U.S. households, is closely watched because consumer confidence drives consumer spending, which accounts for about two-thirds of the nation’s economic activity.

The index compares results to its base year, 1985, when it stood at 100. The October figure is the lowest since February 1994.

Consumer spending has been one of the main factors preventing the economy from sliding into recession. But many economists believe a recession is inevitable after the attacks on the World Trade Center and the Pentagon.

Companies have slashed hundreds of thousands of jobs since then. But they already had started trimming payrolls long before the attacks in response to an economic slowdown.

To help revive the economy, the Federal Reserve has cut interest rates nine times this year, with two reductions coming after the attacks.

A 10th cut is expected when policymakers meet next month.

Analysts were particularly surprised by the October drop because another gauge of consumer sentiment rose slightly in October.

The University of Michigan reported last week that consumer sentiment increased to 82.7 in October from 81.8 in September.

The business group’s survey is more influenced by the changes in the labor market than other reports, said Lynn Franco, director of the Conference Board’s Consumer Research Center. Many of the questions the board asks consumers are related to their feelings about jobs and income prospects.

Another analyst suggested that the stream of reports about anthrax infections, the threat of more terrorist attacks and U.S. military action in Afghanistan are darkening consumers’ moods.

“My concern is tempered by the fact there’s been such incessant media attention to the bombings and the anthrax situation,” said Russell Jones, vice president of the retail industry sector at Cap Gemini Ernst & Young.

The Conference Board said consumers’ assessment of the current economic climate grew more pessimistic over the last month. Consumers rating current business conditions as bad rose to 20.6% in October from 18.3% in September, while those who thought conditions were good declined to 18.9% from 22.3%.

The board said expectations for the next six months continued to deteriorate.

The percentage of consumers who think business conditions will worsen rose to 20.3% from 15.8%, while those expecting fewer jobs climbed to 28.9% in October from 22.5% in September.