Posted on: Wednesday, September 1, 2004

Consumer confidence falls

Barbara Hagenbaugh
USA Today

WASHINGTON — Consumer confidence plunged in August while spending at chain stores fell at the end of the month, according to reports out yesterday that heightened concerns about the viability of consumers, the most important players in the U.S. economy.

After rising for four consecutive months, the consumer confidence index fell to 98.2 from a revised reading of 105.7 in July as sluggish job growth, high gasoline prices, a topsy-turvy stock market and continued concerns about terrorism and war weighed on consumers, the private Conference Board reported.

"Until the job market and pace of hiring picks up, this cautious attitude will prevail," says Lynn Franco, director of the New York-based Conference Board's Consumer Research Center.

Assessments of both the current and future situations weakened while the portion of consumers who said jobs were plentiful also declined.

But some economists cautioned against getting too worried, noting confidence was coming off of a two-year high in July and was up 20 percent from the same time a year ago.

Plus, it's what consumers do that counts, not what they say. But on that front, the news wasn't any better.

Sales at chain stores fell 0.2 percent in the week ended Aug. 28 from the previous week, the International Council of Shopping Centers and UBS reported.

Sales were up 2.6 percent from a year ago, the slowest increase in more than a year.

Officials at the ICSC and UBS yesterday lowered their forecast for August retail sales to a 1.5 percent to 2 percent increase, down from the estimate of 2.5 percent in the previous week and 3.5 percent at the beginning of August. If sales growth comes in below 2 percent, it would be the smallest gain since March 2003, when sales actually dropped when compared with the same month in the prior year.

Comparing numbers with those from a year ago may be skewed by the relatively late arrival of Labor Day this year, the mailings of child tax credit checks this time last year — which boosted spending — and a change in the timing of consumer tax holidays, ICSC chief economist Michael Niemira says.

"There's so much noise in these numbers, it's not clear whether it is a fundamental weakening," Niemira says.

His impression is that sales are "still healthy in the fact that growth goes on, it's just not as strong" as earlier in the year.

In other economic news yesterday, the National Association of Purchasing Management's Chicago branch said manufacturing activity in the Midwest advanced at a slower pace in August than in the previous month as new orders, production and order backlogs all lost steam.

In good news, the report showed an increase in hiring in August.