Posted on: Saturday, October 27, 2001

Consumer confidence holding, survey finds

By Carlos Torres and Siobhan Hughes
Bloomberg News Service

NEW YORK — Consumers this month have been more optimistic than expected about their finances and economic prospects, according to a survey by the University of Michigan, a finding that suggests the Sept. 11 terrorist attacks and anthrax scares haven't brought the U.S. economy to a halt.

The university's final index of consumer sentiment for October was 82.7, up from 81.8 in September, people with access to the study said.

"Consumers are realizing that the U.S. economy is fairly resilient," said Cynthia Latta, an economist at Standard & Poor's DRI in Lexington, Mass. "They've shed their worst pessimism, and the anthrax scares haven't frightened them into thinking that things are going to be terrible."

So far, however, it is not clear whether the rise in confidence will translate into additional spending. New home sales fell 1.4 percent in September to an annual sales rate of 864,000 houses, the Commerce Department said. That's the lowest level in a year. The rate of sales in the prior month was revised to 876,000, slower than initially estimated.

KB Home, Lennar Corp. and M.D.C. Holdings Inc. have reported a drop in orders. All of these firms are builders of new homes, which account for about 15 percent of all houses sold. In addition, job cuts since Sept. 11 have made consumers wary of expensive purchases such as homes.

Nevertheless, confidence, while faltering, is still well above the low of 63.9 recorded during the last recession, in 1990-91. That suggests that a series of Federal Reserve interest-rate cuts, a surge of patriotism among consumers and hoped-for additional tax reductions by Congress are limiting declines in confidence and acting as a barrier against a protracted recession.

"Confidence isn't collapsing," said Lynn Reaser, chief economist at Banc of America Capital Management in St. Louis. Consumers are behaving "with a much greater sense of calm and optimism than would have been imagined given the whole chain of events."

Analysts had expected a reading of 82.5 for the final Michigan survey, after an originally reported figure of 83.4.

The university's index of current economic conditions was 94 in October, compared with a preliminary 92.1, and 94.6 in September. The final index of expectations was 75.5, compared with a preliminary 77.9 and September's 73.5.