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The Honolulu Advertiser

Posted on: Wednesday, July 30, 2003

Consumer confidence drops

By Barbara Hagenbaugh
USA Today

WASHINGTON — A weak job market dampened consumers' spirits in July, a private research group said yesterday in a report that countered recent data hinting at an improving economy.

The New York-based Conference Board's closely watched index of consumer confidence unexpectedly fell to 76.6 this month, down from 83.5 in June and the lowest since March, when the Iraq war shook consumers' nerves.

But the report contained mixed messages, as consumers — by far the biggest drivers of the U.S. economy — said although they felt worse, they still planned to increase purchases of major items such as cars, homes and carpeting. That led private economists, most of whom are expecting the sluggish economy to pick up this quarter, to urge patience.

"If the index fails to reach new highs by the early fall, we will have to reassess the outlook for consumers' spending," says Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. "But for now, this dip is nothing to worry about."

Confidence fell across age groups and income levels in July. Both assessments of current and future conditions slid. Feelings about the job market fell. A third of the more than 2,500 respondents said jobs were "hard to get," the highest in more than nine years.

The jobless rate was 6.4 percent in June, also the highest since 1994. Data for July will be out Friday.

On a positive note, the Conference Board's report showed 8.5 percent of consumers said they planned to buy a car, 28.4 percent planned to buy a major appliance, and 3.4 percent planned to buy a home — all increases from June. The number who said they planned to take a vacation in the next six months, however, slipped to 41.8 percent, the lowest in more than two decades.

Economists stressed that consumers' actions were far more important than their words.

"Our motto around here is: 'We'll watch what consumers will do, not what they say they will do,' " said Ron Wexler, U.S. economist at Merrill Lynch.

Recently, there have been tentative signs that the economy might be improving. Data on durable-goods orders, manufacturing activity and claims for jobless benefits have all improved.

But economists caution more evidence is needed before declaring victory.

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