- The Washington Times - Wednesday, October 31, 2001

Consumer confidence this month plunged to its lowest level since 1994 as rising unemployment and the anthrax scare took a toll on workaday Americans.
The loss of confidence reported by the Conference Board yesterday came on top of an even bigger drop in September and took the financial markets by surprise, provoking a 148-point fall in the Dow Jones Industrial Average. A measure of confidence published by the University of Michigan on Friday had raised hopes among investors because it showed sentiment stabilizing after a precipitous fall in September.
The Conference Board, a business research group, said the biggest factor making consumers more pessimistic in its survey was the sharply deteriorating job market. More than 300,000 layoffs have been announced since the terrorist attacks, and a jobs report on Friday is expected to show unemployment rising to 5.2 percent. Meanwhile, a dearth of help-wanted ads is making it hard for laid-off workers to find jobs.
Nearly four out of five of the consumers surveyed by the Conference Board said jobs are not so plentiful or easy to get, compared with half of consumers a year ago. The 5,000 Americans surveyed also noted a marked deterioration of both their current financial situations and their expectations for the future resulting in an 11.5-point drop in the board's confidence index to 85.5.
"Layoffs and bioterrorism seem to be taking a toll," said Gerald Cohen, economist with Merrill Lynch. The collapse of confidence in the last two months has not as yet resulted in a collapse of spending, he said, mostly due to deep discounting by retailers and zero-interest rate financing being offered by automakers to entice consumers to keep buying cars.
"Consumer spending has held up," he said, "but we expect consumer spending will fall in coming months" because of the darkening job outlook. Since consumer spending is the biggest contributor to economic growth, analysts say the economy cannot stay out of recession if consumers capitulate.
Because the loss of confidence reflects widespread layoffs and rising unemployment, it will not be regained anytime soon and bodes ill for the Christmas shopping season, when more than a quarter of all purchases usually are made, the Conference Board said.
Economists said the University of Michigan report on Friday may have been more upbeat because it does not give as much weight to the employment situation as the Conference Board index. Consumers apparently were buoyed in the Michigan survey by a strong rally in the stock market during most of October, falling energy prices and lower inflation.
Conference Board economist Delos Smith emphasized that the steady drumbeat of news about anthrax is undermining confidence. "The consumer right now is just a nervous wreck," he told Agence France-Presse. "People are very upset and for good reason. Bioterrorism is scary as hell."
David Norman, economist with the Manufacturers Alliance, said yesterday's report shows that the threat of more terrorist attacks is keeping consumers on the defensive.
"This anthrax is becoming more and more widespread, and there's just a lot of uncertainty" coming on top of the anxiety generated by the September 11 attacks. "Concerns of an imminent terrorist attack are certainly going to reduce consumer confidence. It's bound to make people nervous" and continue to hold down confidence and spending, he said.
Mr. Norman is optimistic that confidence will rebound if the government quickly "gets a handle on the anthrax situation," finds the perpetrators and meets with success in its war in Afghanistan. But on the other hand, he said, confidence would plunge even further if another terrorist attack occurs.

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