Stock market decline shakes consumers

Adam Geller

Tuesday, July 30, 2002 | 9:47 a.m.

NEW YORK -- Consumer confidence fell sharply in July, to its lowest level in five months, undermined by a steep decline in stock prices and worries about jobs, a private research group reported today.

The New York-based Conference Board said its Consumer Confidence Index fell to 97.1 from a revised 106.3 in June. Analysts had been expecting a reading of 101.5.

The industry group's index, based on a monthly survey of some 5,000 U.S. households, is closely watched because consumer confidence drives consumer spending, which accounts for about two-thirds of the nation's economic activity.

"The erosion in consumer confidence represents a significant deterioration in consumer attitudes" said Lynn Franco, director of The Conference Board's Consumer Research Center. "The continued decline in the value of stock market portfolios, coupled with ongoing reports of corporate scandals, have taken a toll on consumer confidence."

The report contributed to a decline on the stock market, which was already trading lower before the data was released this morning. In late morning trading the Dow Jones industrial average was down 150.09, or 1.7 percent, at 8,561.79. Investors were also taking profits after the Dow's 447-point gain the day before.

The index compares results to its base year, 1985, when it stood at 100. July's figure is the lowest since February, when consumer confidence fell to 95.0 during congressional hearings investigating the Enron scandal.

From a historical context, the July index is not alarming, but a "continued slide could very well jeopardize the economic recovery," the Conference Board said in a written release.

The report showed a sharp decline in consumers' confidence about current economic conditions, which could indicate that consumers are ready to cut their spending.

Economists said the figures show how much the drop in stocks has worried consumers, but questioned the long-term impact of that change in mood.

"This shows that consumers were definitely shaken by the stock market sell-off," said Mark Vitner, economist at Wachovia Securities in Charlotte, N.C. "The rebound probably came too late to help out the confidence numbers."

He noted that while consumer confidence seems shaken, the number reporting plans to buy cars or houses actually rose, indicating that consumers aren't reining in spending.

"It's hard for me to believe that consumers are sitting on their wallets," he said.

According to the Conference Board, the number of consumers rating current conditions as "bad" increased from 19.5 percent to 22.1 percent, while the number sizing up the conditions as "good" increased slightly, from 19.9 percent ot 20.1 percent.

The number of consumers who said jobs are hard to get rose from 23.2 percent to 24.0 percent, with the number reporting jobs as plentiful falling from 20.1 percent to 18.8 percent.

Consumer expectations for the next six months have also dampened, the board said. The number expecting a deterioration in business conditions rose from 7.1 percent to 9.2 percent, while those who foresee an improvement declined from 23.7 percent to 20.9 percent.

The outlook for jobs also soured, with 17.1 percent of consumers saying they expect fewer jobs to open up in the next six months, up from 14.3 percent.