Consumer Confidence Tumbles
WASHINGTON -- Consumer confidence plunged to a nine-year low this month as job cuts, war worries and sniper scares shook up Americans, threatening to damp holiday spending and damage an already feeble economic recovery.
The Conference Board’s index of consumer confidence fell from 93.7 last month to 79.4, its fifth straight decline and the steepest monthly drop since last year’s terrorist attacks, the business research group said Tuesday. The index is now at its lowest since late 1993, when the country was struggling back from the early-1990s recession.
Although confidence is one of the most uncertain of measures, analysts said the sheer size of the decline and the fact that it was almost entirely unexpected suggest a marked souring in the public mood that could have substantial political and economic repercussions.
Economically, the most immediate worry is the critical holiday shopping season. “This could be the Grinch that stole Christmas,” said Standard & Poor’s chief economist David A. Wyss.
Wyss and others said the risk of weak holiday sales could prompt the Federal Reserve to cut interest rates from their already near-record lows when the central bank’s policymaking body meets next week.
Coming only a week before Tuesday’s congressional mid-term elections, the numbers could also hint at political trouble for Republicans. “They suggest there’s more wind behind the economic issue than there was, and that helps Democrats,” said Karlyn K. Bowman, a polling expert with the generally conservative American Enterprise Institute.
Separately Tuesday, a widely watched measure of chain-store sales slumped 1.9% for the week ended Saturday. The decline in the Bank of Tokyo-Mitsubishi index brought the measure of U.S. retailers’ sales to its lowest level since the beginning of the year and was another sign that consumers are pulling back after their most recent buying binge this summer.
Another weekly report, the Redbook survey, showed sales growing 1.4% during the first three weeks of October. But the report, a sales-weighted average of year-on-year sales growth at discount, department and chain stores open at least a year, said sales slowed in the third week of the month.
The latest reports, though perhaps driven in part by anxiety over the sniper attacks in the Washington, D.C., area that have since come to an end, appeared to discourage even the optimists at the Treasury Department. A senior Treasury official acknowledged Tuesday to members of an outside panel that the economy began slowing in September and probably would grow more slowly during the final three months of the year than previously predicted. The remarks by Deputy Assistant Treasury Secretary Mark Warshawsky were in marked contrast to the sunny accounts of the economy offered recently by Treasury Secretary Paul O’Neill.
The slide in both confidence and sales is unlikely to be the last of the bad economic news for the week. Most analysts predict that the October jobs report due out Friday will show a rise in the nation’s unemployment rate and either a decline or no growth in jobs. “We expect a very weak report,” said Peter Kretzmer, an economist with Bank of America Securities in New York.
Despite the bad news, some analysts continue to see strength in the economy. They cautioned that the confidence number in particular can be misleading because consumers often have continued to make purchases even as they report that they are pessimistic about their prospects.
“Watch what people do, not what they say,” recommended UCLA economist Edward A. Leamer. They kept buying houses and cars this summer even as the confidence index was declining, he said.
Analysts said the latest signs of economic weakness could be enough to convince the Fed’s policymaking Open Market Committee to cut its signal-sending federal funds rate from its four-decade low of 1.75% when the group meets next Wednesday. The committee warned at its September meeting that the recovery could sputter out, and, in an unusual move, two panel members dissented from the group’s decision to leave rates unchanged.
Even if the Fed doesn’t act immediately, analysts said, the new confidence numbers make it more likely the central bank will cut rates within a few months if only because there is so little else helping the economy.
“There is nothing sparkling about this economy. There is nothing driving it forward,” said Los Angeles economist Donald H. Straszheim.
Stocks dropped sharply but then largely recovered, and the price of U.S. Treasury securities rose in reaction to the new confidence numbers. The Standard & Poor’s 500 index shed 8 points, or 0.8%, to close at 882.15. The Nasdaq composite index fell 15 points, or 1.2%, to 1,300.54.
Economists have focused increasing attention on confidence and retail sales as business investment has come to a standstill, and consumers have become virtually the only actors on the nation’s economic stage. Consumption accounts for about two-thirds of the country’s economic activity.
The new confidence numbers were particularly dispiriting because they showed sharp declines both in consumers’ view of their present situations and in their expectations for the next six months. The present-situation index fell 11 points to 77.5. The expectations index fell an even steeper 16.5 points to 80.7. Economists had predicted only a small decline in the two indexes.
Fully 55.3% of those surveyed by the Conference Board described the economy as poor or very poor, up from 51% and the highest level since December 1993. Some 41% said the Democratic Party would do a better job managing the economy, compared with 39% who said Republicans would do better.
Conference Board officials said that consumers’ biggest worries were jobs and incomes. The share of consumers who said that jobs are hard to get rose to 27.3% in October, the highest level since late 1994. The fraction that said they expected their incomes to decline in the coming months rose to 11.4%, the highest since late 1993.
“The outlook for the holiday season is pretty bleak,” said Lynn Franco, the group’s consumer research director. “Without the prospect of a pickup in consumer spending, an already weak economic recovery could weaken further,” she said.
The other major confidence survey, by the University of Michigan, showed less dramatic declines in October but said that consumers reported their finances as being in the worst condition in a decade.
