U.S. Economy: Consumer Confidence Fell to 9-Year Low (Update2)
By Carlos Torres and Siobhan Hughes
Washington, Jan. 28 (Bloomberg) -- U.S. consumer confidence declined to a nine-year low in January as more people said they were concerned about a deteriorating economy that would threaten jobs and reduce pay.
The Conference Board's consumer confidence index fell to 79, the lowest since November 1993, from 80.7 in December. Economists had expected the index would fall to 78.4, according to the median of 60 forecasts. The decline comes during a month in which energy costs rose, the threat of war with Iraq intensified and stock prices fell.
``The consumer is unsure and unsteady,'' said Drew Matus, a senior economist at Lehman Brothers Inc. in New York.
Confidence has fallen in seven of the last eight months and may temper purchases by households. So far, consumer spending has been helped by strength in the housing market, where new home sales rose to a record last month.
The lowest mortgage rates in four decades are making housing an attractive investment alternative as the stock market stumbles. New home sales in 2002 were the highest on record, the Commerce Department said. New homes sold at a 1.082 million-unit annual rate last month. Some 976,000 new homes were sold last year, surpassing the 2001 record of 908,000.
``As long as mortgage rates remain so low, housing should remain a pillar of strength for the economy,'' said Stephen Stanley, an economist at RBS Greenwich Capital in Greenwich, Connecticut.
The median price on a new home rose 3.4 percent last year, the government figures showed, compared with a 23 percent drop in the Standard & Poor's index of 500 stocks.
Financial Markets
Stocks rose and Treasury securities fell after the confidence report. Delos Smith, a Conference Board economist, said last week the index would probably decline to ``near 70,'' leading some investors to expect a reading close to that today.
The S&P index rose 5 points, or 0.6 percent, at 12:52 p.m. New York time, while the Dow Jones Industrial Average increased 45 points, or 0.6 percent. The Treasury's 4 percent note maturing in November 2012 fell 3/16 point, pushing up the yield 3 basis points to 3.99 percent.
A separate report from the Commerce Department showed orders for durable goods, excluding transportation equipment, rose 1.1 percent in December. That compares with expectations for a 0.7 percent increase, according to the median of 18 forecasts.
Expectations
Growth probably slowed to 0.9 percent in the last three months of 2002 a Commerce Department report will probably show Thursday, according to the median in a Bloomberg News survey.
A gauge of consumer expectations for the next six months fell to 81.4 from 88.1. The component of the confidence index that tracks consumers' present situation rose to 75.4 this month from 69.6 in December.
The share of consumers who expect more jobs to become available six months from now fell to 14.3 percent, the lowest since October 2001, from 15.4 percent. The percentage of people who expect incomes to increase fell to 18.4 percent from 19.6 percent. The percentage expecting business conditions to worsen rose to 14 percent in January from 11 percent.
Consumers are more upbeat about present economic conditions. The percentage of consumers who saw jobs as plentiful rose to 14.5 percent this month, compared with 12.3 percent in December.
Employment
Last month, the unemployment rate held at 6 percent, matching an eight-year high, and companies cut 101,000 jobs, the second consecutive drop.
The percentage planning to buy a major appliance fell to 27.8 percent from 28.4 percent. The percentage expecting to buy a car dropped to 6.7 percent from 7.7 percent. The share of consumers planning to buy a home increased to 3.4 percent from 3.2 percent.
The price of gasoline is rising as crude oil costs jump because of the strike in Venezuela and concerns that a possible war with Iraq will disrupt supplies. The average price of all grades of gasoline at the pump rose to $1.52 a gallon in the week ended Jan. 27, the highest in 16 months, according to figures from the Department of Energy.
Consumers ``are going to hunker down and the higher oil prices will also take a bite out of spending,'' said Astrid Adolfson, a senior economist at McCarthy Crisanti and Maffei in New York.
Stock Prices
Lower stock prices may also be shaking confidence. The Standard & Poor's 500 index is down 9 percent since Jan. 14, wiping out gains made earlier in the month. The index is now down 4 percent for the year.
Sears, Roebuck & Co., the largest U.S. department-store chain, said this month that sales at stores open at least a year fell 7.3 percent in the fourth quarter, capping 16 straight months of declines. Sales will probably continue to drop during the next six months, said Alan Lacy, the company's chief executive officer, in an interview earlier this month.
``The first half of the year is going to be quite difficult,'' Lacy said. ``The consumer is being very careful with their money right now and I think, particularly with the Iraqi War hanging over us, that until that situation clarifies itself, consumer spending is likely to be pretty tight.''
Today's report comes as Federal Reserve policy makers begin a two-day meeting to determine the direction of interest rates. Central bankers will probably keep their target for the benchmark overnight bank lending rate at 1.25 percent, a 42-year low, according to the median estimate in a Bloomberg News survey, in order to shore up confidence and stimulate spending.
The U.S. economy is expected to grow at a 2.7 percent pace this quarter compared with an average of 4 percent a quarter from 1996 to 2000, according to the consensus of economists surveyed by Blue Chip Economic Indicators this month.
The Conference Board surveys 5,000 households about general economic conditions, their employment prospects and their spending plans. |
