- The Washington Times - Wednesday, January 29, 2003

NEW YORK (AP) The threat of war with Iraq is eroding consumer confidence, economists said yesterday, but it doesn't yet seem enough to jeopardize the upward trend in new-home sales.
"There's no doubt the uncertainties about geopolitical events weigh on people's minds," said Josh Feinman, chief economist with Deutsche Asset Management in New York. "Is there going to be a war? Certainly, that's contributing to people's anxiety."
The Consumer Confidence Index slipped to 79 in January from a revised 80.7 in December, but was above the 78.5 that analysts were anticipating. The index is based on a survey of 5,000 U.S. households and compares with its base of 100 in 1985.
"Overall readings continue to reflect the country's lackluster economic activity," said Lynn Franco, director of the Conference Board's Consumer Research Center. "Now, with the threat of war looming, consumers have grown increasingly cautious about the short-term outlook."
The Conference Board report showed consumers were also concerned about the job outlook and their incomes in the next six months. The index has fallen since May, when it stood at 110.3, ticking upward just once in November.
"The decline came entirely from the expectations component, again reflecting fear of what comes next," said Oscar Gonzalez, senior economist at John Hancock Financial Services in Boston. "The next few weeks are so uncertain that, in this instance, the numbers probably reflect the American mood, rather than a rational assessment of the economic environment."
Separately, the Commerce Department reported yesterday that sales of new single-family homes rose in December to their highest level since the government began tracking results in 1963.
New-home sales reached a seasonally adjusted annual level of 1.08 million in December, achieving both a monthly and yearly record. Consumer spending accounts for two-thirds of economic activity and new-home sales have helped buttress an otherwise lackluster economy.
"In times of uncertainty, people still want a home and the home front is helping keep the economy moving forward," Mr. Gonzalez added.
For the year, new-home sales ballooned nearly 8 percent over 2001 results.
Meanwhile, the latest durable goods report showed only a marginal increase, suggesting the battered manufacturing sector is still far from being able to contribute to an economic recovery.
New orders to U.S. factories for big-ticket goods also known as durable goods rose by 0.2 percent in December, the Commerce Department said yesterday.
Though economists were expecting a much bigger increase of 1 percent, the report did improve from November, when new orders of durable goods fell by a sharp 1.3 percent.
Economists say businesses must start investing in costly capital goods for the economy to achieve a sustained comeback.
"The manufacturing sector is deep in the dumps, and this report gives little hope of improvement," Mr. Gonzalez said.
"The only good news is that the results round out a flat year."
For all of 2002, new orders to factories for costly manufactured goods fell 0.2 percent, compared with an 11.6 percent plunge suffered in 2001.

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