Consumer Confidence Plummets to New Low in February
February 24, 2009 - 12:24 PM<br />
Other economic news released Tuesday was unlikely to boost that morale, at least in the short term.
Major retailers including Target Corp., Home Depot and Macy's Inc. reported depressed fourth-quarter results. Another widely watched index showed home prices tumbled by the sharpest annual rate on record and Federal Reserve Chairman Ben Bernanke said the economy is suffering through a "severe contraction" that's likely to keep shrinking in the first half of this year.
The New York-based Conference Board said its Consumer Confidence Index, which was down slightly in January, plummeted more than 12 points in February to 25, from the revised 37.4 last month. That was well below the 35.5 level that economists surveyed by Thomson Reuters expected.
The index, which had hovered in the high 30s over the past few months, broke new lows since it began in 1967. A year ago, the consumer confidence reading stood at 76.4.
The Present Situation index, which is consumers' assessment of current economic conditions, fell to 21.2 from 29.7 last month. The Expectations' Index, which is consumers' outlook over the next six months, sank to 27.5 from 42.5.
"Looking ahead, increasing concerns about business conditions, employment and earnings have further sapped confidence and driven expectations to their lowest level ever," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.
Franco added that the report showed worries about inflation, which had eased over the past several months, picked up. Economists carefully monitor consumer confidence since consumer spending accounts for more than two-thirds of economic activity.
Signs of a further collapse in consumer confidence is bad news for the economy and stores, whose success hinges on them being in the mood to spend. Economists already feared that shoppers' moods likely will remain battered throughout most of the year as employers continue to slash jobs at a torrid pace, but the latest report shows confidence may not have hit bottom.
On Monday alone, troubled flash memory maker Spansion Inc. said it will cut its global work force by 35 percent, affecting about 3,000 employees, mostly at manufacturing sites. And computer chip maker Micron Technology Inc. announced it will slash as many as 2,000 workers by the end of August and phase out certain manufacturing operations at its Boise, Idaho facility.
Consumers also are nervous about still-sinking home prices, and the latest report from the Standard & Poor's/Case-Shiller U.S. National Home Price Index, showed conditions deteriorating further.
The national index plunged 18.2 percent during the quarter from the year-ago period, the largest drop in its 21-year history. Prices are now at levels not seen since the third quarter of 2003. In the month of December, the Case-Shiller 20-city index plunged 18.5 percent from December 2007 levels, while the 10-city index dropped 19.2 percent.
Still, Bernanke said he hoped the current recession will end this year. But there are significant risks to that forecast and any economic turnaround would hinge on the success of the Fed and the Obama administration in getting credit and financial markets to operate more normally again.
"Only if that is the case, in my view there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery," Bernanke said.
On Wall Street, stocks rose moderately. The Dow Jones industrial average added about 95 points in morning trading, while the Standard & Poor's 500 index and the Nasdaq composite index also gained. The early advance came a day after another sharp drop in stocks left the Dow Jones and the S&P 500 near 12-year lows.
Economists had hoped the passage of the $787 billion economic stimulus plan would help lift confidence. But investors, wary about the plan's impact, have pushed stocks lower. And while the government has said it doesn't want to nationalize banks, many investors are worried about the possibility as banks continue to suffer severe losses.
Job security is a major factor behind shoppers' ability and willingness to spend. In fact, the U.S. unemployment rate -- now at 7.6 percent, the highest in more than 16 years -- is expected hit a peak of 9 percent this year, according to the latest outlook from leading forecasters in a survey by the National Association for Business Economics.
The consumer confidence survey, which sampled 5,000 U.S. households through Feb. 18, showed how Americans' worries about jobs sank further.
Those saying jobs are currently "hard to get" increased to 47.8 percent from 41.1 percent in January, while those stating jobs are "plentiful" fell to 4.4 percent from 7.1 percent.
Meanwhile, the percentage of consumers expecting fewer jobs in the months ahead increased to 47.3 percent from 36.9 percent, while those expecting more jobs declined to 7.1 percent from 9.1 percent. The proportion of consumers expecting an increase in their incomes declined to 7.6 percent from 10.3 percent.
Retailers' fourth-quarter reports reflected Americans' financial worries. Macy's Inc. reported an almost 59-percent drop as results were hurt by weak sales and one-time costs associated with the consolidations of regional divisions and store closings. Target Corp.'s profit fell 41 percent due partly to credit card woes. The Home Depot Inc., which has suffered under the weight of the collapsing housing market, reported a loss of $54 million mostly due to its plan to shut its four smaller home-improvement brands.
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