Consumer confidence drops for second straight month

The Associated Press
Wednesday August 29, 2001

NEW YORK — Consumer confidence dropped for the second consecutive month in August, a sign of growing concern about a lack of jobs and unemployment, a private research group said Tuesday. 

The New York-based Conference Board said its Consumer Confidence Index eroded to 114.3, down from a revised 116.3 in July. The drop followed gains in May and June and put the index at the lowest level since it hit 109.9 in April. 

“The deteriorating U.S. job market dampened consumer spirits this month,” said Lynn Franco, director of the Conference Board’s Consumer Research Center. “The nation’s employment and unemployment numbers now bear watching, since continued weakness could translate into slower consumer spending.” 

The news sent stocks lower; the Dow Jones industrial average was down 116 points in afternoon trading. 

The Conference Board index, based on a monthly survey of some 5,000 U.S. households, is considered a key indicator because consumer spending accounts for about two-thirds of the nation’s economic activity. The index compares results with its base year, 1985, when it stood at 100. 

The August index includes 14.9 percent of consumers rating business conditions as “bad,” compared with 14.6 percent in July. 

The survey found 15.9 percent saying jobs were “hard to get,” up from 14.1 percent in July. The number who said jobs were “plentiful” fell from 35.6 percent to 33.4 percent. 

Layoffs have driven the nation’s unemployment rate from a 30-year-low of 3.9 percent last October to 4.5 percent in July. Many economists are predicting the jobless rate will continue to rise later this year and could surpass 5 percent. 

The downturn in confidence threatens consumer spending, which has been surprisingly buoyant and has kept the economy from sinking into recession, said Sung Won Sohn, chief economist with Wells Fargo & Co. in Minneapolis. 

“If consumers decide to bail out, the economy could go into a recession,” he said. “However, I am hoping that consumer confidence will rebound as the tailwinds, including the tax cut, the effect of lower interest rates and the cheaper cost of energy, help the consumer to move forward.” 

Consumer spending accounts for two-thirds of all economic activity. 

Trying to avert a recession, the Federal Reserve has slashed interest rates seven times this year. 

Sohn said he was encouraged by an uptick in consumer optimism about future business conditions, with 18.9 percent saying they expect an improvement in the coming six months, up from 17.2 percent in July. 

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