- The Washington Times - Tuesday, February 24, 2004

NEW YORK (AP) — Intensifying concern about the job market sent consumer confidence tumbling in February, but the downturn in sentiment should not effect Americans’ spending in the short term, economists said.

The Conference Board reported yesterday its consumer confidence index dropped more than nine points to 87.3 after a rise in January to a revised reading of 96.4. That reading was the index’s highest since mid-2002.

Analysts had expected a decline, but the index still came in significantly below their consensus forecast for a reading of 92.3.

“A lot of it has to do with the labor market and the fact that we’re not seeing the kind of pickup in jobs that consumers had originally expected,” said Scott Hoyt, director of consumer economics for Economy.com, a forecasting firm in West Chester, Pa.

The confidence reading is followed closely because consumer spending accounts for two-thirds of the economy. Consumers who feel more upbeat about the economy are likely to spend more, while those who remain pessimistic may curb their purchases.

But upcoming tax refunds and, to some extent, larger bonuses in some industries, should provide incentive for continued consumer spending for at least the next few months, by which time the job market is likely to begin picking up, Mr. Hoyt said.

The downturn in confidence bears watching, however, in an economy that has been unable to create many jobs despite robust growth, analysts said.

“Consumers remain disheartened with current economic conditions, and at the core of their disenchantment is the labor market,” said Lynn Franco, director of the Conference Board’s Consumer Research Center. “While the current expansion has generated jobs over the past several months, the pace of creation remains too tepid to generate a sustainable turnaround in consumers’ confidence.”

The lack of confidence shows that consumers are puzzled by incremental improvements in the job picture, focusing on economic changes that have become a key issue in the presidential campaign.

“The labor market is actually improving, not very rapidly, but it’s improving,” said Sung Won Sohn, chief economist at Wells Fargo & Co. in Minneapolis. “But the perception is otherwise because a lot of the publicity that we’ve gotten from the politicians and debates about whether outsourcing is good or bad, so people are feeling pretty uncomfortable about the labor market situation.”

The drop-off in confidence reflects consumer uncertainty over both the current business climate and economic conditions in the coming six months.

In February, an index measuring consumers’ assessment of current conditions dropped to 73.1 from 79.4 the previous month. Those describing the present climate as good declined to 19.3 percent from 21.9 percent in January. Those who said conditions are bad increased to 25.1 percent from 22.9 percent.

The sentiment regarding jobs was similarly depressed, with those saying positions are hard to get rising to 32.1 percent from 31.6 percent, while those saying jobs are plentiful slipped to 11.8 percent from 12.3 percent.

In January, Americans’ doubts about the current economy were tempered by a rosier outlook for the future. But that was reversed in February.

The drop in sentiment may have been amplified by very cold weather in the eastern half of the country, said Mark Vitner, senior economist with Wachovia Corp., who noted that the biggest declines came in the Northeast and Mid-Atlantic states.

But that was merely a contributing factor to attitudes built on well-founded doubts about jobs, even if the job picture has not really been getting worse, he said.

“The reason why consumers say jobs are hard to get is because jobs are hard to get,” he said. “I just don’t think it got any harder in February.”

The Conference Board’s measure of consumer expectations for the next six months also declined, falling to 96.8 from 107.8 in January. Those who expect the economy will improve in the short run dropped to 21.8 percent from 27.6 percent. Meanwhile, the number who expect conditions to worsen rose to 8.7 percent from 6.7 percent.

Those anticipating more jobs declined to 18.7 percent from 22 percent. The proportion who expect fewer jobs rose to 18.1 percent from 15 percent. Those who expect a rise in their incomes declined to 16.7 percent from 19.2 percent.

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