Consumer confidence at 7-year low

By Lisi de Bourbon
Associated Press

NEW YORK — Consumer confidence plummeted in October to its lowest level in 7 years as the Sept. 11 terrorist attacks and the ongoing anthrax scare sapped Americans' optimism about job security and the economy.

The New York-based Conference Board said today that its Consumer Confidence Index sank to 85.5 from 97 in September. Analysts were expecting a reading of 96.

"Widespread layoffs and rising unemployment do not signal a rebound in confidence anytime soon," said Lynn Franco, director of the Conference Board's Consumer Research Center. "With the holiday season quickly approaching, there is little positive stimuli on the horizon."

The index, based on a monthly survey of some 5,000 U.S. households, is closely watched because consumer confidence drives consumer spending, which 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 October figure is the lowest since February 1994.

Analysts were surprised by the drop in October, particularly since another gauge of consumer sentiment showed an upward tick in consumer sentiment for the month.

The University of Michigan reported last week that consumer sentiment increased to 82.7 in October from 81.8 in September.

"It is a bit at odds," said Scott Brown, chief economist at Raymond James and Associates in St. Petersburg, Fla. "You have to do some sort of psychological weighing of the Michigan numbers and the Conference Board numbers. You can't take one over the other, so take an average."

Franco said the board survey is more influenced by the changes in the labor market than other reports. Many of the questions the board asks consumers are related to their feelings about their job and income prospects.

Consumers have been one of the main factors preventing the economy from sliding into recession. But many economists now believe a recession is inevitable because of the fallout from the attacks.

Employers have slashed hundreds of thousands of jobs since hijackers rammed commercial jets into the World Trade Center and the Pentagon.

But companies had already started trimming payrolls well before the attacks in response to an economic slowdown that triggered weakened earnings and a slump in stock prices.