NEWS SENDS STOCKS LOWER

Consumer confidence falls in Sept.


Published: Wednesday, October 1, 2003 at 6:01 a.m.
Last Modified: Tuesday, September 30, 2003 at 11:00 p.m.
NEW YORK - With the job market still sluggish, consumers' confidence in the economy fell more than expected in September, a private research group said Tuesday.
The sour report on consumer confidence and a disappointing report on business activity in the Midwest helped send stock prices lower on Wall Street.
The Consumer Confidence Index fell to 76.8, down nearly five points from the revised 81.7 registered in August, according to the New York-based Conference Board.
The decrease was steeper than expected - analysts were looking for a reading of 80.5. It was the biggest decline since July, when consumer sentiment fell 6.5 points to 77. The index had bounced back in August.
"The lack of improvement in labor market conditions continues to dampen consumers' spirits," said Lynn Franco, director of the board's consumer research center. "Despite September's retreat, consumers remain cautiously optimistic about the outlook for the next six months. Consumer spending is likely to continue at or near current levels."
Economists closely track consumer confidence because consumer spending accounts for two-thirds of U.S. economic activity.
"We have enjoyed a period of optimism over the summer," said Gary Thayer, chief economist at A. G. Edwards & Sons Inc., referring to the tax cuts, victory in Iraq and gains in the stock market. "But now we are seeing a more sober view of things, primarily because of jobs."
The nation's unemployment rate dipped to 6.1 percent in August, but businesses cut 93,000 jobs, the seventh month in a row of job losses.
Robust productivity gains, meanwhile, have allowed companies to produce more with fewer workers, which has resulted in a lackluster job market. Still, consumer spending has continued to grow moderately, increasing by 0.8 percent last month on top of a 0.9 percent advance in July. Larger paychecks and other incentives from President Bush's third tax cut has helped prop up spending.
Consumer confidence has been on a roller coaster ride since April when it rebounded sharply, prompted by the swift outcome of the U.S.-led war in Iraq. Franco said that consumer sentiment will likely be volatile until the labor market shows some signs of improvement, and the pattern is typical of what was seen when the economy was coming out of the 1991 recession.
A component of the confidence index, the Expectations Index, fell to 88.4 from 94.9. Another component, the Present Situation Index, sagged to 59.5 from 62.0.
Consumers anticipating that business conditions will improve over the next six months slipped to 21.4 percent from 22.6 percent in August. Those anticipating business conditions to deteriorate rose to 11.9 percent from 10.6 percent.
The employment outlook is also less optimistic. Those anticipating the job market to improve in the next six months decreased to 16.7 percent from 18.0 percent. Those expecting fewer jobs to become available increased to 21.0 percent from 18.6 percent. Consumers anticipating an increase in their incomes fell to 18.6 percent from 20.7 percent.
Consumers' appraisal of current conditions was influenced by the job market. Those reporting jobs are "hard to get" increased to 35.3 percent from 34.1 percent. Those claiming jobs are "plentiful" retreated to 10.0 percent from 11.3 percent in August.
Consumers' assessment of the present business environment remained relatively unchanged. Those rating current business conditions as "good" edged up to 16.0 percent from 15.9 percent, while those holding the opposite view declined to 29.6 percent from 31.0 percent.
Meanwhile, the Purchasing Management Association of Chicago said Tuesday that its index of area business activity fell to 51.2 in September on a seasonally adjusted basis from 58.9 in August. Economists were anticipating a much smaller decline to 57.0. The Chicago index is considered a precursor to the national Institute for Supply Management's index, to be released today.
Still, a reading above 50 indicates that business is expanding and September marked the fifth straight month that the midwestern business barometer indicated growth.
On Wall Street, stock prices extended their decline for the day following the consumer confidence news, with the Dow Jones industrial average falling 105 points.
Investors have been growing more jittery about stock prices, fearing they're too expensive given that the economy is still struggling.

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