Consumer Confidence Shows Biggest Drop in 15 Years

Consumer confidence plunged in September, a report said on Tuesday, damaged by Hurricane Katrina, higher gasoline prices and a more pessimistic view of the job outlook.

The Conference Board (search) said its gauge of consumer sentiment "plummeted" in September to 86.6 from 105.5 in August. A Reuters poll of economists had culled a median forecast for a smaller, but still substantial, drop in the index to 95.0.

The business research group said the devastation from Katrina in late August, coupled with soaring energy prices and a souring view of employment prospects, pushed confidence to its lowest since a reading of 81.7 in October 2003.

These factors "created a degree of uncertainty and concern about the short-term future," said Lynn Franco, director of the Conference Board's consumer research center.

Historically, though, such shocks have had a short-term impact on confidence, especially on consumers' expectations, Franco added.

The group's present situation index slumped to 108.9 in September from 123.8 while its expectations index fell steeply to 71.7 from 93.3.

Consumer spending is the backbone of the U.S. economy, accounting for some two-thirds of activity, so changes in confidence are seen as a possible precursor to softer or stronger growth.

But Ken Mayland, president of Clearview Economics (search), said the confidence plunge represented "more of an emotional response to the recent woes and gives very little insight into consumer spending behavior."

Consumers' overall assessment of ongoing conditions was less favorable in September. Those asserting that business conditions were good declined to 25.2 percent in September from 29.7 percent in August. Those claiming that business conditions were bad rose to 17.7 percent from 15.1 percent.

The employment picture also bleakened in consumers' eyes with the portion of respondents saying that jobs were hard to get rising to 25.4 percent in September from 23.1 percent in August. The portion of respondents claiming that jobs were plentiful fell to 20.1 percent from 23.6 percent.

Consumers' outlook for the next six months turned "considerably pessimistic," the Conference Board said.

The proportion of consumers anticipating their incomes to decrease in the months ahead rose to 10.8 percent in September from 8.9 percent in August.

Those expecting business conditions to worsen jumped to 19.8 percent in September from 10.0 percent in August.

Meanwhile, respondents expecting business conditions to improve fell to 15.3 percent from 18.7 percent.

The outlook on the labor market also soured, with those expecting more jobs to become available in the coming months decreasing to 14.0 percent in September from 16.4 percent in August. Those expecting fewer jobs to become available jumped to 25.0 percent, up from 17.3 percent.