Consumer confidence unexpectedly drops in December


Published: Wednesday, January 1, 2003 at 6:01 a.m.
Last Modified: Tuesday, December 31, 2002 at 9:42 p.m.
NEW YORK - Consumer confidence unexpectedly fell in December as the outlook for employment worsened, energy prices rose and the stock market slumped during a period of uncertainty around the globe.
It was the sixth time in seven months that consumers' sentiment soured, the New York-based Conference Board reported Tuesday.
The research group's Consumer Confidence Index dropped to 80.3 from a revised 84.9 in November, the only month the index rose since June. Analysts had been expecting a reading of 88.0 in December.
Americans' surprisingly pessimistic view of the economy was reflected in the abysmal holiday shopping season. It was shaped by the increased likelihood of a U.S.-led war against Iraq and higher prices for gasoline and heating oil - the result of political strife in oil-rich Venezuela, said David Watt, a Toronto-based economist for BMO Nesbitt Burns.
Recent tensions between the United States and North Korea over that country's nuclear weapons program made matters worse, Watt said, as did steadily falling stock prices.
Lynn Franco, director of the Conference Board's consumer research center, said "the major factor dampening consumers' spirits has been the rising unemployment rate and the discouraging job outlook."
"Weak retail sales over the holidays clearly reflect the current mood of consumers," Franco said. "Until there is an improvement in labor market conditions, there is not likely to be a significant upturn in consumer confidence."
Nationwide unemployment was 6 percent in November, matching an eight-year high set in April, and some economists believe it could rise as high as 6.5 percent by the middle of 2003.
While this holiday season is expected to be the weakest in more than 30 years in terms of sales growth, the Conference Board data show consumers do not plan to tighten their purse strings. The percentage of people who plan to buy automobiles, TV sets and washing machines within 6 months increased in December, compared with November.
"Nobody feels good, yet everybody's out buying things," said Watt. "There is definitely a disconnect between the way people feel and the way they're acting."
The Conference Board's index, based on a monthly survey of some 5,000 U.S. households, is closely watched because consumer confidence drives con- sumer spending, which accounts for about two-thirds of the nation's economic activity. The index compares results to its base year, 1985, when it stood at 100.
The outlook for jobs was particularly grim, with 20.2 percent of consumers saying they expect fewer jobs to open up in the next six months, up from 18.8 percent in November. Those expecting more jobs fell to 15.1 percent from 15.4 percent.
Income expectations were dour, with 18.7 percent of consumers anticipating a rise in their incomes, down from 19.4 percent a month ago.
The Conference Board report showed waning optimism about current economic conditions, too.
The number of consumers rating current conditions as "good" fell to 14.6 percent, down from 16.1 percent in November, while the number sizing up the conditions as "bad" remained steady at 26.0 percent, the Conference Board said.
On the positive side of the ledger, the number of consumers expecting an improvement in business conditions in coming months grew to 20.8 percent from 20.3 percent a month ago. Respondents who held the opposite view declined to 11.0 percent, down from 11.3 percent in November.

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