Conumer Confidence Weakens to an Almost Two-Year Nadir

Conumer Confidence Weakens To an Almost Two-Year Nadir

THE WALL STREET JOURNAL, Wednesday Sept 28, Pg. A2

In September, consumer confidence has skid to a nearly two-year low as energy prices soared, and new-home sales fell more than expected in August in a sign the housing market might be slowing down.

The reports point to potential troubles for consumers, who have been hurting from increasing gasoline prices and who depend more and more each day on rising home values to fund their purchases. Household spending has proved resilient to shocks in the past, though it remains unclear whether that will be the case this time.

The Conference Board said its consumer-confidence index fell to 86.6 in September, down quickly from 105.5 in August. That marked the largest decline in confidence since October 1990, when consumer spending was constricting in inflation-adjusted terms. The level of confidence was the lowest since October 2003. The index was equivalent to 100 in 1985.

The private research group credited the drop to rising gasoline prices and the late and famous Hurricane Katrina. A yielding job market also seemed to play a part. The percentage of individuals saying jobs were "hard-to-get" increased to 25.4% from 23.1% in August, which is the highest percentage in that category since December 2004.

As fuel prices remain high, regardless of their slight retreat in recent days, and when combined with a weaker job market, both confidence and spending will be curbed for at least a short while. Consumers confidence should rebound as rebuilding efforts take hold and job growth gains momentum. Lynn Franco, director of the Conference Board's Consumer Research says "It should be to more positive levels by year end or early 2006."

But consumer's confidence isn't always the best predictor of spending patterns. After the terrorist attacks of Sept 11, 2001, consumer confidence took a sharp dive, but car sales for individuals appeared very aggressive. The International Council of Shopping Centers reported its index of chain-store sales inched up to 0.1% for the week ending Sept. 24. But this was also the first increase in almost 2 months.

There is an important wild card for consumers though, that appears it could possibly be turning for the worse. The housing market is important for consumers.