Consumer Confidence Dips Again in January
Tuesday January 28, 10:29 am ET
By Ross Finley
NEW YORK (Reuters) - Worries about jobs and the drumbeat of war with Iraq weighed on American consumers' spirits in January, but not as much as many analysts had feared, tempering worries about a second U.S. recession.
The Consumer Confidence Index fell to a nine-year low of 79.0 in January from a revised 80.7 in December, the Conference Board, a private business research group, said in a release on Tuesday.
While the index has now fallen for seven of the past eight months, the drop was more moderate than average forecasts for 78.1.
The drop in confidence, which comes as U.S. troops gather in the Gulf for a potential war with Iraq, was driven entirely by a sharp fall in consumers' expectations for the next six months. By contrast, most consumers reported their present situation had actually improved in the past month.
"It's fear about war and the impact on the economy," said Kevin Logan, senior economist at investment bank Dresdner Kleinwort Wasserstein. "People are concerned about the price of oil and they're worried about what it will do to the economy."
While off a recent peak last week of $35 a barrel, crude oil is trading near $33, sharply up from about $20 in January 2002, in part on worries about war with Iraq.
Consumer confidence is closely watched by economists and businesses for clues about spending, which makes up two-thirds of the U.S. economy. Retailers just passed through one the worst holiday shopping seasons in three decades and all eyes are now on the consumer as businesses continue to shed workers and hold off on capital spending plans.
Stocks and the dollar reacted positively to the report, trading higher, while safe-haven U.S. Treasury bonds extended earlier losses.
The Present Situation Index, a measure of consumers' current attitudes about the economy and their finances right now, rose to 75.4 in January from a revised 69.6 in December. But the Expectations Index, a gauge of consumers' six-month outlook, fell nearly seven points to 81.4 from a revised 88.1.
"With the threat of war looming, consumers have grown increasingly cautious about the short-term outlook," said Lynn Franco, director of the Conference Board's Consumer Research Center, who added that the index level is a reflection of "lackluster economic activity."
While the report said the employment outlook was less favorable, there was one sign of hope for the labor market.
Consumers reporting "jobs hard to get" fell to 28.8 percent from 29.7 percent. This gauge is closely correlated with shifts in the unemployment rate, which is already at an eight-year high of 6.0 percent.
While many factors play into the American consumer's psyche, none is more important than jobs, and analysts and economists have repeatedly said that until companies begin rehiring workers, consumer confidence cannot rise much.
Other measures of consumer confidence have also been falling. The University of Michigan's consumer sentiment index for early January fell to 83.7 from 86.7 in December, much lower than economists had expected.
Federal Reserve officials have been very clear they are more concerned with what consumers do than with what they say. That said, the central bank's half-percentage-point interest rate cut in November so far has done nothing to prop up confidence.
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