Consumer Confidence Falls Sharply

Tuesday, 23 Feb 2010 11:59 AM

 

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A monthly poll showed consumers' confidence took a surprisingly sharp fall in February amid rising job worries. The decline ends three straight months of improvement and raises concerns about the economic recovery.

The Conference Board said Tuesday its Consumer Confidence Index fell almost 11 points to 46 in February, down from a revised 56.5 in January. Analysts were expecting only a slight decrease to 55.

The increasing pessimism is a big blow to hopes that consumer spending will power an economic recovery. Economists watch the confidence numbers closely because consumer spending accounts for about 70 percent of U.S. economic activity.

The February reading is a long way from what's considered healthy: A reading above 90 means the economy is on solid footing. Above 100 signals strong growth.

The news sent stocks lower, overshadowing retailer reports that showed stronger holiday profits. The Dow Jones industrial average falling 74.29 points to 10,309.09 by midmorning.

One gauge, measuring consumers' assessment of current conditions, dropped to 19.4 from 25.2, the lowest level since 1983. The other barometer, which measures their outlook over the next six months and had been rising since October 2009, fell to 63.8 from 77.3.

The overall Consumer Confidence Index hit a historic low of 25.3 in February 2009 but then enjoyed a three-month climb to 54.8 in May, fueled by signs the economy might be stabilizing. Since then, it has been mired in a narrow range, dropping as low as 47, as rising unemployment took a toll, before climbing again for a three-month stretch.

February's reading is well below the 61.4 figure in September 2008, when the financial crisis intensified with the collapse of Lehman Brothers. The index has had an average reading of 95.6 since the Conference Board starting tracking the figures in 1967.

"The combination of earnings and job anxieties is likely to continue to curb spending," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.

The downbeat report on confidence was released amid encouraging news about the housing market. According to a key housing index, also released Tuesday, home prices rose for the seventh straight month in December, a sign of price stability as the U.S. housing market continues its bumpy road to recovery.

The Standard & Poor's/Case-Shiller 20-city home price index rose 0.3 percent from November to December, to a seasonally adjusted reading of 145.87. The index was off 3.1 percent from December last year, nearly matching analysts' estimates that it would fall by 3.2 percent.

But a solid job market is critical to consumers' boosting their spending and the overall of health of the economy.

The overall economy expanded at an annual rate of 5.7 percent in the fourth quarter, but only about one-fourth of that growth came from consumers. That marked the second quarterly increase in a row after four quarter of decreases. But continued high unemployment could lead consumers to further cut their spending, and that could dampen economic growth.

Many economists expect new jobs to be created in coming months. Unemployment fell to 9.7 percent in January from 10 percent in December, and employers shed 20,000 jobs. But they still worry that joblessness will climb back up by next summer as unemployed people who abandoned job searches start trying again.

The results, based on a sample of 5,000 U.S. households with cutoff date was Feb. 17, showed consumers' assessment of current job opportunities and job prospects over the next six months eroded.

Those saying that jobs are "hard to get" rose to 47.7 percent from 46.5 percent, while those saying jobs are "plentiful" decreased to 3.6 percent from 4.4 percent.

As for the outlook for the job market, the share of consumers expecting fewer jobs increased to 24.6 percent from 18.9 percent. Those anticipating more jobs will become available in the months ahead declined to 13.4 percent from 15.8 percent. The proportion of consumers expecting an increase in their incomes dropped to 9.5 percent from 11.0 percent.

Traditionally, jobs don't improve a recovery in consumer spending and confidence. But Gary Thayer, chief economist at Wells Fargo Advisors, believes that this time around, big improvements in jobs, confidence and spending will be "marching together."

"I think shoppers are going to wait until things get better," he said.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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