Index of Consumer Sentiment Declines

Consumer confidence fell unexpectedly this month and other indicators paused, suggesting that the economic recovery might not be quite as unbridled as thought.

The Conference Board, a respected business research group, said Tuesday that its consumer confidence index slipped to 91.3 from November’s year-plus high of 92.5, largely on doubts that corporate America was finally beginning to hire again. Economists had predicted that the index would rise slightly.

Separately, a survey of manufacturing in the Chicago area suggested that recovery of the region’s factory sector lost some steam in December, and the National Assn. of Realtors reported that sales of previously owned homes slipped in November, the second straight monthly decline.

Most analysts discounted the latest economic soundings as too small to contradict the widely accepted picture of a U.S. economy finally on the mend. Investors appeared to take the new figures in stride, with the Dow Jones industrial average slipping 0.2% to 10,425.04 and Nasdaq gaining 0.2% to 2,009.88.

But some observers warned that unless consumers began to feel the effects of recovery soon, the economy’s comeback could be threatened.

“Consumers are saying they see the overall improvement, but it hasn’t reached their lives,” said Wachovia Corp. senior economist Mark Vitner. “If it doesn’t shortly, the recovery is going to be in trouble.”

Consumer confidence is one of the softest of economic measures, relying as it does on people’s reports of how they feel. But it is watched closely because it can affect consumer spending, which accounts for nearly two-thirds of the nation’s economic activity.

December’s slide in confidence centered on how consumers assessed the economy at present, with the Conference Board’s current conditions index falling to 73.9 from 81.0 in November. The other component in the board’s measure -- based on what consumers said they expected the economy to be doing in six months -- actually rose to 102.9 this month from 100.1 in November.

“People’s expectations have been gaining ground for three months now, which means they understand that the economy is improving,” said Lynn Franco, the business group’s director of consumer research.

But, she added, “their assessment of current conditions is still lackluster largely because of the weak jobs market.”

The percentage of people telling survey takers that jobs are “plentiful” fell to 12.5% this month from 13.5% in November. The percentage reporting that jobs are “hard to get” rose to 32.6% from 29.6%.

Consumers’ dim assessment of their job prospects comes despite indications that U.S. employers have begun hiring again. The nation’s employment total has expanded by an average of 82,000 a month since August -- a reversal from the period after the recession officially ended in November 2001 during which the economy continued shedding positions. Both initial and continuing claims for unemployment compensation benefits have fallen in recent weeks.

Continued worries about jobs indicate that the labor market will have to add positions at a much brisker pace to change people’s attitudes, analysts said. Vitner suggested that only employment growth of 200,000 to 300,000 a month for the next four months would allay concerns that the benefits of recovery “are not reaching Main Street.”

The latest Conference Board confidence measure was based on information from 5,000 U.S. households that was collected through Dec. 16, shortly after the capture of former Iraqi leader Saddam Hussein.

The group’s results generally matched those of a similar University of Michigan survey, which showed that confidence dropped to 73.9 in December from 81.0 in November.

In manufacturing, the Chicago Purchasing Managers index slipped to 59.2 this month from 64.1 in November but remained well above the 50 mark that is the tipping point between expansion and contraction.

Sales of previously owned homes fell unexpectedly from a 6.35-million-unit annual pace in October to a 6.06-million rate last month, according to the Realtors association.