Consumer confidence drops sharply

January 29, 2008 8:10:22 AM PST
Consumer confidence fell sharply in January on worries over deteriorating business conditions and a weakening job market, a business research group said Tuesday.The New York-based Conference Board said that its Consumer Confidence Index dropped to 87.9 in January from a revised 90.6 in December. That put it back to about where it was in November, when it registered 87.8.

The January reading was just a tad below the 88 expected by Wall Street analysts, according to Thomson/IFR.

The index, which measures how consumers feel now about the economy, has been weakening since July, suggesting that wary consumers could retrench financially. Any cut back on consumer spending could weaken the economy further.

January's data was collected before the Federal Reserve on Jan. 22 cut its short-term interest rate target three-quarters of a percentage point to 3.5 percent to boost the economy.

Two days later, the White House and Congress announced a joint agreement to work on an economic stimulus program that's expected to include tax rebates for consumers.

The Fed began a two-day meeting on Tuesday, and many in the market expect an additional rate cut of at least a quarter of a point.

The market marked time in advance of Fed's Wednesday announcement, with the Dow Jones industrial average up 47.15, or 0.4 percent, at 12,431.04 in midmorning trading and the Standard & Poor's 500 index up 3.87, or 0.3 percent, at 1,357.83. The Nasdaq composite fell 4.35, or 0.2 percent, to 2,345.56.

Robert B. MacIntosh, chief economist with Eaton Vance Corp., the Boston-based investment management firm, said he was worried that consumers were overreacting to media reports and politicians' statements suggesting the economy was heading into a severe recession.

"It's not strong, but they make it sound like it's 1932 all over again, and I don't think that's the case," MacIntosh said, in a reference to the Great Depression.

MacIntosh expects the economy to be weak through the first half of the year, growing at an annual rate of about 1 percent, with unemployment creeping up.

"It won't feel great, but I don't think we're going to have a recession," he said.

Adding to the mixed reports about the economy, the Commerce Department reported Tuesday that orders to factories for big-ticket manufactured goods soared in December by the largest amount in five months, welcome news for an economy buffeted by talk of recession. The 5.2 percent increase in orders was a surprise finish for the manufacturing sector at year's end - a segment of the economy considered to have had a poor year.

Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement that the consumer confidence survey - which is based on a sample of 5,000 U.S. households - indicated that consumers in January appeared more pessimistic about the economy.

"Consumers' appraisal of current business conditions is becoming more negative and their assessment of the job market, while slightly less negative than in December, is more negative than a year ago," Franco said.

She added: "Looking ahead, consumers are quite downbeat about the short-term future, and a greater proportion expect business conditions and employment to deteriorate further in the months ahead."

The Conference Board's expectations index, which measures consumers' outlook over the next six months, declined to 69.6 in January from 75.8 the month before. The present situation index rose to 115.3 from 112.9 in December.

Franco said that the percentage of consumers anticipating an improvement in their earnings has declined, "and could potentially impact spending decisions."

Many retailers reported mediocre Christmas shopping, and national chain store sales were expected to show further decline in January.

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