- The Washington Times - Wednesday, February 26, 2003

NEW YORK (AP) Consumer confidence in the economy plunged to its lowest level in nearly 10 years in February as Americans grew bleak about jobs and oil prices in the face of the prospect of war with Iraq. Despite all those concerns, however, people still bought homes at a record pace.
The Consumer Confidence Index plummeted almost 15 points in February to 64 its lowest reading since October 1993 from a revised 78.8 in January, the Conference Board reported yesterday. Analysts were predicting a much smaller decline to 77 for February.
"It's a bigger drop than expected and at a pretty low level," said Josh Feinman, chief economist for Deutsche Asset Management in New York. "On all fronts, it's jitters about the upcoming war with Iraq."
Economists closely track consumer confidence because consumer spending accounts for two-thirds of economic activity.
"The gloom is deepening," said economist Oscar Gonzalez of John Hancock Financial Services in Boston. "A stagnant job market, rising oil prices, slumping stock prices and the threat of war with Iraq, all of these seem to be pressing down heavily on consumers."
Still, Americans continued their home-buying frenzy last month as the housing market remained one of the few bright spots in the economy.
Sales of previously owned homes surged in January to their best month ever, coming in at a seasonally adjusted annual rate of 6.09 million, the National Association of Realtors said yesterday. That represented a strong 3 percent increase from December and defied analysts' expectations that home sales would dip slightly.
"It's mortgage rates," said David Lereah, the association's chief economist. He said low mortgage rates continue to be "the fuel for the housing engine."
The average, fixed-rate 30-year mortgage dropped to a new monthly low of 5.92 percent in January down from 6.05 percent in December.
Enticingly low mortgage rates pushed sales of both new and existing homes to record levels last year. And, just last week, the government reported that construction of new homes and apartments posted a 16-year high in January a sign the housing industry is off to another good year.
Economist say potential home buyers are also motivated by solid appreciation of housing values, making for an attractive investment in a turbulent stock market.
The national median home price in January was $160,400, up 6.7 percent from January a year ago. The median price is where half sell for more and half sell for less.
Except for home sales, consumers have been growing increasingly somber about the economy as the United States inches closer to war. The Consumer Confidence Index was down for the third straight month in February, as those surveyed expressed more worries about their jobs and their incomes.
Two related indexes that the Conference Board tracks monthly also plunged in the latest survey.
The Present Situation Index, which gauges consumers' sentiment about current business conditions, dropped to 61.6 in February from 75.3 in January. The latest time the index fell to such lows was in November 1993, when it hit 59.2.
The Expectations Index, intended to measure feelings about the next six months, fell more than 15.5 points to 65.6, hitting an 11-year low. It stood at 81.1 only a month ago.
"This month's confidence readings paint a gloomy picture of current economic conditions, with no apparent rebound on the short-term horizon," said Lynn Franco, director of the Conference Board's Consumer Research Center.
Many economists believe the threat of war with Iraq is the biggest albatross holding back the economy, a far greater hindrance than corporate scandals and the working off of excesses of the boom.
"Right now, until people see some resolution and I don't mean a U.N. [United Nations] resolution I mean a resolution of geopolitical uncertainties, they going to stay cautious, households and businesses," said Mr. Feinman. "Everyone's on hold right now." Except if they're buying a home.


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