Consumer Confidence continues to sag + Dismal view/analysis;
U.S. Consumer Confidence Declined to 109.2 in April
(Update1) - 04/24 10:39
By Siobhan Hughes
Washington, April 24 (Bloomberg) -- Consumer confidence in the U.S. economy
fell in April, matching a 4 1/2-year low and a reflection of reduced optimism about
job prospects, a private survey showed.
The Conference Board's consumer confidence index fell to 109.2, the sixth
decline in seven months, from a revised 116.9 in March. The April reading was
the same as February's index, which was the lowest since October 1996.
Confidence helps drive consumer spending, which accounts for two-thirds of
economic growth, and April's decrease shows an economy struggling to rebound.
``Consumers are concerned about the job market and perhaps more importantly,
about future income prospects,'' said Chris Low, chief economist at First
Tennessee Capital Markets in New York. Still, consumers may take comfort in
the recent stock market gains. ``Barring another reversal, confidence will be
higher in May.''
Government securities fell and stocks rose on expectations optimism will start to
rise in coming months in wake of the Federal Reserve's reduction in interest
rates last week and rising stock values.
The government's 10-year Treasury note fell 13/32, pushing up the yield 5 basis
points to 5.23 percent, while the Dow Jones Industrial Average rose 99 points, or
0.9 percent.
Fed policy makers last week surprised investors by cutting interest rates for the
fourth time this year. Central bankers cut the overnight bank lending rate to 4.5
percent, the lowest in more than six years.
Stocks Rally
That helped boost stock prices further in April. The Nasdaq Composite Index has
jumped 15 percent in April, while the Standard & Poor's 500 Index has climbed
almost 7 percent.
Analysts had expected a confidence index reading of 112 after March's originally
reported 117.
The April decrease reflected reduced optimism about both present and future
conditions. The component of the confidence index that tracks consumers'
present situation fell to 155.6 -- the lowest since 147.5 in October 1997 -- in April
from 167.5.
The gauge of consumer expectations for the next six months fell to 78.2 in April
from 83.1.
Layoff announcements this month at companies such as Nortel Networks Corp.,
the largest maker of fiber-optic equipment, and Minnesota Mining &
Manufacturing Co., the maker of products ranging from Post-It Notes to circuit
boards, seem to be contributing to consumer pessimism.
``The most important indicator looking forward is jobs,'' said Richard Yamarone,
senior economist at Argus Research Corp. in New York. ``Jobs determine
spending, not confidence. We shouldn't expect to see strong spending in coming
months.''
Jobs
The percentage of Americans who saw jobs as plentiful fell to 40 percent in April,
compared with 43.8 percent a month earlier. The April index was the lowest
since 36.4 in November 1997. The share seeing jobs as hard to get rose to 14.2
percent from 12.6 percent in March. The April share was the highest since 14.6
in December 1998.
St. Paul, Minnesota-based Minnesota Mining said yesterday it will fire 5,000
workers, or 7 percent of its staff, and half of those job cuts will be in the U.S. over
the next 12 months. Nortel said last week it plans 20,000 job cuts, or 21 percent
of its workforce, by midyear.
That's why some consumers have responded by curbing their buying plans. The
share of consumers planning to buy a home fell to 3.2 percent from 4.2 percent.
The percentage planning to buy a automobile fell to 7.6 percent from 7.9 percent.
Greenspan
Investors and Wall Street analysts are watching the Conference Board's report
closely after Fed Chairman Alan Greenspan recently cited confidence as a
determinant of whether the economy rebounds quickly or stays in a slump.
With the economy slowing more than Fed officials had hoped, ``the crucial issue
is whether that marked decline breaches consumer confidence, because there is
something different about a recession from other times in the economy,''
Greenspan testified on Capitol Hill in January.
The New York research group surveys about 5,000 households about general
economic conditions, their employment prospects and their spending plans.
Since reaching an all-time high of 144.7 in May and January of last year, the
confidence index has declined.
Some business executives have already seen reduced consumer confidence
damp sales. ``Consumer confidence was dropping'' so ``people slowed down their
picture-taking,'' Daniel Carp, chief executive of Eastman Kodak Co., said in an
interview last week. Kodak is the largest photography company.
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