Consumer confidence drops, again

To the surprise of many who watch the indicator, the consumer confidence index dropped for the fifth consecutive month in November. The index, one of the economy's most closely watched monthly numbers, fell more than three points to 82.2.

Compiled by The Conference Board every month, the index had been expected to show some improvement in the most recent survey. Economic watchers had foreseen a gain based on an increase in the University of Michigan's consumer sentiment index (which appeared in the week for The Conference Board's number), signs of healthy traffic at retailers during the post-Thanksgiving weekend and promising news from the war in Afghanistan.

Nevertheless — as Lynn Franco, director of the board's consumer research center observed — consumer confidence is still prey to the jobs bugaboo. "Rising unemployment and continuing layoff announcements are dampening confidence," Franco said. "A turnaround in confidence levels is not likely before year's end, nor are retailers likely to enjoy a blockbuster holiday season."

The two major components of the overall confidence statistic moved in opposite directions in the November survey. The present situations index plummeted nearly 14 points, finishing at 93.5; but the expectations index gained almost four points, to 74.6.

The jobs picture colored consumers' view of the present. The survey respondents who felt that jobs are "hard to get" rose from 20.6 percent in October to 23 percent last month; in addition, those looking upon jobs as "plentiful" fell from 20.9 percent to 17 percent.

A slightly more positive viewpoint emerged when the consumer-respondents looked ahead six months. Those expecting more jobs to become available rose from 13.9 percent to 14.1 percent from October to November. Those predicting fewer jobs in the next six months declined from 29 percent to 26.6 percent. Critical to forecasting spending levels, about 20.3 percent of the November survey participants said they expect their incomes to rise in the next six months, compared with 18 percent in October.

Analyzing the overall confidence picture, David Orr, chief economist for Wachovia Securities, zeroed in on the discrepancies between The Conference Board's result and the index from the University of Michigan. Orr noted that the financial markets are putting more weight on the upbeat University of Michigan results — wrongly, in his opinion.

"In our view, current financial market psychology is underestimating the negative impact that rising joblessness will have on the housing and motor vehicle markets in the first half of 2002," Orr wrote in a piece evaluating the consumer confidence index. "While leading indicator surveys pay more attention to expectations, we have found spending more linked to present situation."

For analyst Anthony Karydakis of Banc One Capital Markets Inc., the continued downward course of consumer confidence "is a stark reminder that the consumer remains in a precarious state."

Karydakis observed that the overall confidence index has dived nearly 32 points in the last three months, and that the present situations component has fallen 37.5 points in the past two months. "The [Conference Board's] report raises some questions as to whether the consumer and the economy are already bottoming out," he said.

Consumer confidence by region

New England -17.4%
Middle Atlantic 0.1
East North Central -13.2
West North Central 0.2
South Atlantic 1.0
East South Central 8.0
West South Central -3.4
Mountain -8.4
Pacific -13.7

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