Consumer Confidence Drops More Than Expected

Consumer confidence declined in September and Midwest manufacturing activity weakened, new data showed Tuesday, in reports that raised fresh concerns about the economy’s momentum.

The Conference Board, a business forecast group, said its consumer confidence index last month fell by a larger-than-expected 4.9 points from the previous month, to 76.8.

The drop in the index, which is based on a survey of 5,000 households, wiped out much of August’s large gain. In addition, the board’s index of consumers’ expectations fell to 88.4 from 94.9, indicating that Americans are less confident about the future as well as about the present.

“The lack of improvement in labor market conditions continues to dampen consumers’ spirits,” said Lynn Franco, director of the Conference Board’s Consumer Research Center.

Americans took a dim view of the job market, with those anticipating it would improve in the next six months falling to 16.7% from 18%, according to the Conference Board. Meanwhile, those reporting that jobs are “hard to get” rose to 35.3% from 34.1%.

“We have enjoyed a period of optimism over the summer,” said Gary Thayer, chief economist at A.G. Edwards & Sons Inc., referring to the tax cuts, the initial military victory in Iraq and gains in the stock market. “But now we are seeing a more sober view of things, primarily because of jobs.”

Declining confidence raises concerns about Americans’ willingness to spend. Consumer spending has been the major prop holding the economy up.

Still, the Conference Board said that spending “is likely to continue at or near current levels.”

In a separate report, the Chicago Purchasing Manager’s index of regional manufacturing activity fell more than 7 points from August to 51.2 in September.

Any reading over 50 indicates manufacturers are expanding, but the September report showed that production and new orders softened and hiring fell.

“It’s not a set of particularly reassuring news,” said Cynthia Latta, a U.S. economic specialist for Global Insight, a business forecasting and consulting firm.

“Consumers are really worried about the job market,” Latta said. “Businesses are worried that spending won’t hold up. Therefore, they are very reluctant to hire. Consequently, it’s almost a chicken and egg situation.”