- The Washington Times - Wednesday, August 29, 2001

A darkening job outlook hit consumer confidence this month and touched off a sharp drop in the stock market yesterday.
The Dow Jones Industrial Average fell 160 points after the Conference Board reported yesterday that its index of consumer confidence fell because consumers are finding jobs increasingly hard to get. It was the second monthly decline in the index, which is at its lowest level since April.
"The deteriorating U.S. job market dampened consumer spirits this month," said Lynn Franco, consumer research director at the New York business think-tank. "This suggests rising unemployment ahead."
The report struck fear in the hearts of investors because consumer spending on houses, autos, appliances and other things has been the primary engine keeping the U.S. and world economies out of recession in recent months.
Worry that consumers might give up the ghost because of rising unemployment drove the Dow down 1.5 percent to 10,222. The Nasdaq Composite Index dropped 47 points, or 2.5 percent, to 1,865.
"The consumer is the last finger hanging on the edge of the cliff. If we lose him," the economy may slip into recession, said Mitch Stapley of Fifth Third Investment Advisors.
Economists say the job outlook is the most important factor for consumers. Confidence got rattled earlier this year by big drops in the stock market and less favorable business conditions. But consumers remained upbeat about their own financial situation, for the most part, because they believed jobs were plentiful.
The job outlook has dimmed substantially in recent months, however. Job growth stopped altogether in the last three months, according to the Labor Department, while mass layoffs climbed sharply.
The gathering gloom is registering with consumers. Two-thirds of those surveyed by the Conference Board this month said that jobs are no longer plentiful or are downright hard to get.
That caused the confidence index to slip to 114.3 from 116. The index has fallen 30 points from a record high of 144.7 struck during last year's economic boom, but it remains well above the lows hit 10 years ago during the last U.S. recession.
The slip in confidence mirrors a rise in unemployment to 4.5 percent from 3.9 percent last fall. While unemployment remains historically low, economists expect it to rise further to 5 percent by the end of the year as businesses continue to retrench.
Many analysts have held out hope for a recovery of job growth later this year, but a survey of business hiring plans released this week by Manpower Inc. cast doubt on that.
The Manpower survey found that 60 percent of businesses have no plans to hire in the final three months of the year, 5 percent are unsure and 11 percent plan to lay off workers.
Manpower chief executive Jeffrey A. Joerres said the number of companies that plan to add employees at 24 percent is down dramatically from last year. Though much of the decline has been in manufacturing, the job freeze recently has spread.
"The services industry, which had shown resistance to declines in earlier quarters, is now indicating hiring plans at historical recession levels," he said.
Sung Won Sohn, chief economist at Wells Fargo & Co., said he hopes consumers will not be daunted by the news.
"If consumers decide to bail out, the economy could go into a recession," he said. "I am hoping that consumer confidence will rebound as the tailwinds, including the tax cut, the effect of lower interest rates and the cheaper cost of energy help the consumer to move forward."
Businesses had been counting on nearly $38 billion of tax rebates mailed out in the last month to give a lift to confidence and consumer spending. Yesterday's report provided little evidence of that, however.
"The number one factor swaying consumers appears to be the availability of jobs," said Mark Vitner, vice president of First Union bank. But the tax cuts and huge dose of interest rate cuts administered by the Federal Reserve this year may be spawning hopes for better times ahead, he said.
The Conference Board's index of future economic conditions improved slightly this month, reflecting consumers' belief that the economy will recover at least modestly by the end of the year.
That expectation has kept consumers in the mood to buy homes, cars, and other big-ticket items and suggests that spending growth will hold up despite diminished optimism about jobs, Mr. Vitner said.

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