- The Washington Times - Tuesday, February 25, 2003

NEW YORK, Feb. 25 (UPI) — The Conference Board said Tuesday consumer confidence in the nation's economy plunged in February to its lowest level since October 1993, knocked down by surging energy costs, a lackluster job market and concerns over terrorism and a possible war with Iraq.

The private research group said its index measuring consumer confidence, which uses 1985 as a base of 100, tumbled 14.8 percentage points to 64 from a revised 78.8 in January. The Board had originally reported confidence as 79 during January.

Most economists on Wall Street were expecting confidence drop to 77 during the month.

Except for a 17-point decline posted in October after the terrorist attacks on America, the February point decline was the largest since April 1980, when a U.S. mission to rescue American hostages in Iran failed.

The Board also noted the last time the consumer confidence index was lower was back in October of 1993 when it stood at 60.5.

Lynn Franco, director of the Conference Board's consumer research center, said, "Lackluster job and financial markets, rising fuel costs, and the increasing threat of war and terrorism appear to have taken a toll on consumers.

"This month's confidence readings paint a gloomy picture of current economic conditions, with no apparent rebound on the short-term horizon," Franco said.

The survey of consumer attitudes concerning both the present situation as well as expectations regarding economic conditions is directly related to the strength of consumer spending.

Strong economic growth translates into healthy corporate profits and higher stock prices. The bond market focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth, which is what happened through much of the nineties. As a result, investors in the stock and bond markets have enjoyed huge gains.

If and when the party comes to an end, more than likely a change in the economic trend will be the culprit, and that change might be tipped off by a change in consumer sentiment.

Consumer spending accounts for two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy.

The Board said the survey, which is based on a representative sample of 5,000 U.S. households, showed its present situation index plunged to 61.6 from 75.3 while its expectations index sank to 65.6 from 81.1 a month earlier.

The report showed consumers' assessment of current conditions turned extremely bleak. Those rating current business conditions as bad rose to 30.7 percent from 26.7 percent. Those holding the opposite view declined to 13.2 percent from 15 percent a month ago.

The Board said consumers' expectations for the next six months were also considerably more pessimistic than last month. Those anticipating that business conditions will worsen increased to 19 percent from 14 percent while those anticipating an improvement fell to 15.3 percent from 17.7 percent in January.

The report also showed the nation's employment outlook was grim. Consumers reporting jobs are hard to get rose to a nine-year high of 30.1 percent from 28.9 percent while those claiming jobs are plentiful declined to 11.2 percent from 14.5 percent.

Consumers anticipating fewer jobs to become available in the next six months surged to 28.4 percent from 21.2 percent and those expecting more jobs fell to 12.7 percent from 14.2 percent.

The proportion of consumers anticipating an increase in their income dropped to 15.2 percent, an all-time low, from 18.4 percent in January.

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