Archive for Wednesday, February 24, 2010

Consumer confidence takes a dive

February 24, 2010

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A shopper passes by an advertisement Feb. 16 at NewPark Mall in Newark, Calif. A monthly poll shows consumers’ confidence took a surprisingly sharp fall in February amid rising job worries. The decline ends three straight months of improvement and raises concerns about the economic recovery.

A shopper passes by an advertisement Feb. 16 at NewPark Mall in Newark, Calif. A monthly poll shows consumers’ confidence took a surprisingly sharp fall in February amid rising job worries. The decline ends three straight months of improvement and raises concerns about the economic recovery.

— Americans’ confidence in the economy has suffered a sudden relapse, dimming hopes that they will start spending — and spurring job growth — any time soon.

The Consumer Confidence Index figures released Tuesday were much worse than analysts had expected and showed that Americans are morose about the job market and their economic prospects. That bodes ill for the sort of uptick in consumer spending that normally powers economic recovery, and could raise pressure on the Obama administration and Congress to create jobs themselves.

The index fell almost 11 points to 46 in February, down from a revised 56.5 in January and the lowest level since a 40.8 reading in April 2009. It erased three consecutive months of improvement, according to the Conference Board, the research group that releases the monthly index.

Analysts were expecting only a slight decrease to 55. Economists watch the confidence numbers closely because consumer spending accounts for about 70 percent of U.S. economic activity.

Outside of the Great Recession, the index hasn’t been this low since December 1974.

“It still feels like a recession” to consumers, said Lynn Franco, director of the Conference Board Consumer Research Center.

Confidence has been recovering fitfully since hitting a historic low of 25.3 in February 2009. Many economists believe it will remain well below healthy levels for at least another year or two. A reading above 90 indicates an economy is on solid footing. Above 100 signals strong growth.

Dana Huskey of Chattanooga, Tenn., said she’s being very cautious with her spending — limiting her trips out to eat and her drives around town. The 26-year-old lost her job at Ann Taylor in July and has lined up a job at a yarn store, but it won’t open until this summer. Her family has been helping her since then.

“I try not to go out to eat unless I have to,” said Huskey. “I got a subscription to the local paper for the weekend edition, to do coupons.”

Some economists say Americans won’t start to feel better and spend more until they see clear evidence of sizable job growth. In past recessions, however, the employment picture didn’t improve dramatically until after a recovery in consumer spending and confidence.

Many economists say business investments and exports can help drive the nascent turnaround in the short term, but a rise in consumer spending is essential to keep it going.

“Without a sustained acceleration in consumption growth, this recovery will eventually fade,” said Paul Ashworth, senior U.S. economist at Capital Economics Ltd.

The consumer confidence report put a scare into the stock market, overshadowing retailers’ reports that showed stronger holiday profits but also offered cautious sales outlooks. There were also signs that the U.S. housing market is continuing its bumpy recovery: A key index showed home prices rose for the seventh straight month in December.

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