NEW YORK – Consumer confidence fell to its lowest level in 7 ½ years as the American public demonstrated their uncertainty in light of the anthrax-by-mail scare and the Sept. 11 terrorist attacks by holding on tight to their wallets.
The New York-based Conference Board said Tuesday that its Consumer Confidence Index sank to 85.5 from 97 in September. Analysts were expecting a reading of 96.
Key stock indexes, which opened lower on the day, fell further on the news. The Dow Jones industrial average closed down 148 points, or 1.6 percent, at 9,122, while the Nasdaq composite index ended 32 points, or 1.9 percent, lower at 1,667.
The confidence index, based on a monthly survey of some 5,000 U.S. households, is closely watched because consumer confidence drives consumer spending, which accounts for about two-thirds of the nation's economic activity.
The index compares results with its base year, 1985, when it stood at 100. The October figure is the lowest since February 1994.
"Widespread layoffs and rising unemployment do not signal a rebound in confidence anytime soon," said Lynn Franco, director of the Conference Board's Consumer Research Center. "With the holiday season quickly approaching, there is little positive stimuli on the horizon."
The Conference Board said consumers' assessment of the current economic climate grew more pessimistic over the past month. Consumers rating current business conditions as bad rose to 20.6 percent in October from 18.3 percent in September, while those who thought conditions were good declined to 18.9 percent from 22.3 percent.
Analysts were surprised by the drop in October, particularly since another gauge of consumer sentiment showed an upward tick in consumer sentiment for the month.
The University of Michigan reported last week that consumer sentiment rebounded to 82.7 in October from 81.8 in September.
"It is a bit at odds," said Scott Brown, chief economist at Raymond James and Associates in St. Petersburg, Fla. "You have to do some sore of psychological weighing of the Michigan numbers and the Conference Board numbers. You can't take one over the other, so take an average."
Franco said the board survey is more influenced by the changes in the labor market than other reports. Many of the questions the board asks consumers are related to their feelings about their job and income prospects.
Consumers have been one of the main factors preventing the economy from sliding into recession. But many economists now believe a recession is inevitable because of the fallout from the attacks.
Employers have slashed hundreds of thousands of jobs since hijackers rammed airliners into the World Trade Center and the Pentagon.
But companies had already started trimming payrolls well before the attacks in response to an economic slowdown.
To help revive the economy, the Federal Reserve has cut interest rates nine times this year, with two reductions coming after the attacks A 10th cut is expected when policy-makers meet next month.
The board also said that expectations for the next six months continued to deteriorate.
The Conference Board is a nonprofit research and business group, with more than 2,700 corporate and other members around the world.
The Associated Press contributed to this report.
Get all the stories you need-to-know from the most powerful name in news delivered first thing every morning to your inbox