- The Washington Times - Tuesday, July 29, 2003

NEW YORK (AP) — Consumer confidence took an unexpected tumble in July, rattled by a jump in unemployment to a nine-year high. That could mean a longer road to economic recovery if consumers allow their shaken feelings to curtail their spending — a key spur to economic growth.

The Consumer Confidence Index fell to 76.6 in July, nearly a seven-point drop from 83.5 in June, the New York-based Conference Board said yesterday. Analysts had expected a 1.5 percentage point increase.

The decline in July was the largest decrease since February, when confidence dropped 14 points to 64.8 as consumers were bracing for a conflict in Iraq. Confidence surged in April as fighting tapered off and some economic indicators improved and essentially held steady in May and June.

Lynn Franco, director of the Conference Board’s Consumer Research Center, said July’s drop, while surprising, reflects the volatility in consumer confidence similar to that seen in the early 1990s when the economy was emerging from a rebound but still struggling with a weak job market.

“The rising level of unemployment and sentiment that a turnaround in labor market conditions is not around the corner have contributed to deflating consumers’ spirits this month,” she said. “Expectations are likely to remain weak until the job market becomes more favorable.”

Consumers’ assessment of both current conditions and their outlook for six months from now deteriorated from June, particularly their perception of the availability of jobs.

Economists and investors closely monitor consumer confidence because consumer spending makes up for two-thirds of all economic activity in the United States and has been a key element in keeping the struggling economy afloat.

There recently had been some signs of a recovery. Last week, the Commerce Department reported the biggest increase in demand for big ticket products since January and a better-than-expected gain in retail sales — the best performance since March. And the National Association of Realtors said new home sales increased to the highest level on record.

Still, the sluggish job market has been a drag on the economy. The nation’s unemployment rate hit a nine-year high of 6.4 percent in June. The Labor Department is scheduled to release July employment data on Friday and economists expect it to tick downward to 6.3 percent.

The expected improvement was helped by figures released from the Labor Department last Thursday showing the number of American workers signing up for jobless benefits — a more volatile, less comprehensive gauge of employment trends — plummeted to the lowest level in five months.

Economists were surprised by the Conference Board figures, but said they didn’t believe consumers would reduce spending unless there were more negative unemployment reports to come.

“This doesn’t mean a sudden decline in consumer spending,” said Oscar Gonzales, economist at John Hancock Financial Services Inc. But he noted that while layoffs have slowed, there hasn’t been improvement in hiring, which has “sunk in” with the consumer.

Mark Vitner, senior economist at Wachovia, noted the Conference Board survey showed consumers’ plans to purchase automobiles, homes and major appliances each increased solidly.

“The critical question is whether consumers were looking backward on unemployment or were they looking forward and telling us that unemployment is going to climb further?” he said.

The Conference Board survey found those rating present business conditions as “bad” increased to 30.4 percent from 28.1 percent. However, those holding the opposite view increased to 16.3 percent from 14.9 percent. Consumers describing jobs currently as “hard to get” rose to 33.1 percent from 31.9 percent, while those claiming jobs are “plentiful” declined to 10.5 percent from 11.2 percent.

Consumers anticipating an improvement in business conditions in the next six months fell to 20.2 percent from 23.5 percent, while those anticipating conditions would worsen rose to 11.5 percent from 9.2 percent.

Respondents saying they expect more jobs to become available over the next six months declined to 16.8 percent from 18.9 percent, while those expecting fewer jobs increased to 19.8 percent from 16.9 percent. The proportion of consumers anticipating an increase in their incomes declined to 15.7 percent from 17.1 percent.

The Conference Board’s indexes are derived from a survey mailed to 5,000 households in a consumer research panel. The results released yesterday are from a partial sample of at least 2,500 responses received through July 22.

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