Consumer Confidence Unexpectedly Drops

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Worries about job security undermined consumer confidence again in November, raising the likelihood that retailers would fall short of the bonanza they had hoped for during the holidays.

The New York-based Conference Board said Tuesday that its Consumer Confidence Index unexpectedly fell for a fifth consecutive month to 82.2 - a new 7 ½ year low - from a revised 85.3 in October. Analysts had forecast an increase to 86.5.

"The bottom line is that consumers feel lousy right now because of concerns about jobs," said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis.

Other analysts said the drop in confidence likely would result in tepid retail sales in the coming weeks. Holiday sales account for 24 percent of retailers' annual revenue.

The 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.

Retailers offered deep discounts and other specials to lure customers to their stores this past Thanksgiving weekend, the traditional start of the holiday buying season. Early results barely met merchants' modest expectations - save Wal-Mart Stores Inc. and some other discount chains.

"It's going to be a rough Christmas for retailers," said Mark Zandi, chief economist at in West Chester, Pa.

The index compares results to its base year, 1985, when it stood at 100. The November figure is the lowest since February 1994, when it reached 79.9.

But at least consumers are feeling far better now than they did nearly a decade ago, when the index 47.3 in February 1992 and the unemployment rate was 7.4 percent, 2 percentage points higher than it is today, Zandi said.

"I don't think we're going to plumb the lows of 10 years ago, but I think we're near bottom, assuming there's no further terrorist attacks," he said.

In a separate report, the National Association of Realtors said sales of previously owned homes increased 5.5 percent in October, mirroring the housing market's continued strong demand. The group said the results may reflect a number of transactions that were postponed in September, when existing-home sales plunged 11.6 percent.

The unexpected dip in consumer confidence pushed the markets lower, with the Dow Jones industrial average finishing off 110 points to nearly 9,873 and the Nasdaq composite index off 5 points to finish just shy of 1936.

In recent weeks, stock prices were starting to make a comeback following U.S. military victories in Afghanistan and on optimism that the U.S. recession - officially confirmed Monday by the National Bureau of Economic Research - would be short-lived.

Analysts also were taken off guard by the November decline since another gauge of consumer sentiment rose slightly. The University of Michigan reported last week that consumer sentiment increased to 83.9 percent in November, up from 82.7 percent in October.

"The Conference Board does a good job of predicting employment conditions whereas the Michigan study does a better job of predicting consumer spending on individual items," said Sohn. "So that's why we have seen the diversions between the two."

Employers have slashed hundreds of thousands of jobs since hijackers plowed commercial jets into the World Trade Center and the Pentagon on Sept. 11.

But companies had already started eliminating jobs well before the attacks in response to the slowing U.S. economy. Even 10 interest rate cuts by the Federal Reserve intended to rejuvenate consumer and business spending weren't enough to keep the United States from slipping into a recession.

The Conference Board said consumers' assessment of the current economic climate is more pessimistic than last month. Consumers rating current business conditions as bad rose to 21.4 percent in November from 20.7 percent in October, while those who thought conditions were good declined to 16.4 percent from 18.6 percent.

However, the board said consumers were slightly more optimistic about economic prospects for the next six months.

The percentage of consumers who think business conditions will worsen fell to 17.3 percent from 20.3 percent, while those expecting fewer jobs fell to 26.6 percent in November from 29 percent in October.

The Conference Board is a nonprofit research and business group, with more than 2,700 corporate and other members around the world.