Consumer confidence continues decline
By Adam Geller
Associated Press
NEW YORK — Consumer confidence fell in August for a second straight month amid rising worries about unemployment, but sentiment about the economy's long-term prospects improved slightly, suggesting consumer spending will continue to prop up the ailing economy.
The New York-based Conference Board said yesterday its Consumer Confidence Index eroded to 114.3, down from a revised 116.3 in July. The drop followed two consecutive gains in May and June and is the lowest level since the index hit 109.9 in April.
While diminished confidence could cause consumers to pare the spending powering the economy, an uptick in the outlook for the next six to nine months, from 92.9 in July to 93.3 in August, indicates spending is likely to hold up, analysts said.
"You're seeing a convergence where people are saying things are not as good as they were before, but they also don't look as bad as we thought they were or as bad as we thought they could be," said Gerald Cohen, senior economist with Merrill Lynch.
That latent optimism, bolstered by low interest rates and tax rebates, may be enough to keep consumers spending, analysts said.
"If consumers decide to bail out, the economy could go into a recession," said Sung Won Sohn, chief economist with Wells Fargo & Co. in Minneapolis. "However, I am hoping that consumer confidence will rebound as the tailwinds, including the tax cut, the effect of lower interest rates and the cheaper cost of energy help the consumer to move forward."
Trying to avert a recession, the Federal Reserve has slashed interest rates seven times this year to their lowest level in more than seven years.
Stock fell sharply after the report was released, in what analysts said was an overreaction. The Dow Jones industrial average fell 160 points to close at 10,222.
The Conference Board index, based on a monthly survey of some 5,000 U.S. households, is considered a key indicator because consumer spending 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 August decline reflects slightly diminished optimism about the current state of the economy, with 14.9 percent of consumers rating business conditions as "bad," compared to 14.6 percent in July.
Those worries were particularly evident in sentiments about jobs, with 15.9 percent of those surveyed saying jobs were "hard to get," up from 14.1 percent in July. The number who said jobs were "plentiful" fell from 35.6 percent to 33.4 percent.
Layoffs have driven the nation's unemployment rate from a 30-year-low of 3.9 percent last October to 4.5 percent in July. Many economists are predicting the jobless rate will continue to rise later this year and could surpass 5 percent.
"The deteriorating U.S. job market dampened consumer spirits this month," said Lynn Franco, director of the Conference Board's Consumer Research Center. "The nation's employment and unemployment numbers now bear watching, since continued weakness could translate into slower consumer spending."
