Confidence index slides

With Christmas only a month away, consumers became more pessimistic about the economy in November, sending a widely watched barometer of confidence to the lowest level in two years amid worries over rising fuel costs and the slump in the housing market.

The Conference Board said Tuesday that its Consumer Confidence Index dropped to 87.3, marking a four-month slide and down almost 8 points from the revised 95.2 in October.

It was the lowest reading since 85.2 in October 2005 when gas and oil prices soared after hurricanes struck the Gulf Coast and shut down a large chunk of the nation’s oil refineries. It also marked the sharpest drop since September 2005 when the index plummeted 18 points from the previous month. Analysts had expected a reading of 91.5 in November.

“Consumers’ apprehension about the short-term outlook is being fueled by volatility in financial markets, rising prices at the pump and the likelihood of larger home heating bills this winter,” said Lynn Franco, director of the Conference Board Consumer Research Center in New York.

The Present Situation Index, which measures how shoppers feel now about the economy, fell to 115.4 from 118.0 in October. The Expectations Index, which measures shoppers’ outlook over the next six months, declined to 68.7 from 80.0.

“It doesn’t mean that shoppers are not going to spend. It implies they are going to be cautious” this holiday season, said Joel L. Naroff, president and chief economist at Naroff Economic Advisors Inc. “To me, it will be a mediocre season; not a terrible one, but not a good one either.”

For retailers, the downbeat report on consumer confidence further fueled concern that the holiday shopping season would be weak.

Retailers struggled with disappointing sales this fall and, though many retailers were encouraged by better-than-expected turnout for Friday’s kickoff of the holiday shopping season, it was the fat discounts that lured consumers in.

According to the International Council of Shopping Centers-UBS index, same-store sales rose 2.5% for the week ended Saturday, compared to the year-ago period. Same-store sales are sales at stores opened at least a year and are considered a key indicator of a retailer’s health.

According to Michael P. Niemira, chief economist at ICSC, “Customer traffic was reasonably healthy but consumers were out looking for bargains.”

A better picture of how shopping went over the Thanksgiving weekend will emerge Dec. 6. when the nation’s retailers report same-store results for November.

The big worry is that shoppers will take their time returning to the stores this holiday season amid worries that higher fuel prices, an escalating credit crisis and the slumping housing market could push the economy into a recession.

With consumer spending accounting for two-thirds of U.S. economic activity, any further drop only increases the risks of a recession.