Consumer confidence level takes unexpected dip

NEW YORK -- The outlook for the holiday shopping season darkened Tuesday as the latest consumer confidence reading showed Americans even more pessimistic about the economy during October. Hurricanes, surging gasoline prices and worries about the job market took a further toll on consumer psyches.

The Conference Board said its Consumer Confidence Index fell to 85 in October, the lowest level since October 2003 and down from September's revised reading of 87.5, which had been the sharpest drop in 15 years. Analysts expected an October reading of 88 for the index, which is compiled from a survey of U.S. household.

"Much of the decline in confidence over the past two months can be attributed to the recent hurricanes, [gas] pump shock and a weakening labor market," said Lynn Franco, director of the private research group's Consumer Research Center.

She said the "degree of pessimism, in conjunction with the anticipation of much higher home heating bills this winter, may take some cheer out of the upcoming holiday season."

Meanwhile, the National Association of Realtors said sales of previously owned homes were unchanged in September at the second-highest level on record. However, the group said sales would have fallen without an increase in demand among people left homeless by Hurricane Katrina.

The latest snapshot on consumer confidence comes at a challenging time for the U.S. economy. There are worries about rising prices across the economy, and Federal Reserve officials have said more interest rate increases are in the offing to keep inflation in check. And while the national job market did not suffer as devastating a blow from hurricanes Katrina and Rita as economists feared, it did lose momentum.

Retailers are already preparing for a difficult holiday season. Although gas prices have slipped back from recent weeks, they still are quite high, and home heating costs are expected to soar this fall and winter.

"Consumers are fairly worried about the economy. ... I think the holiday season is going to be ho-hum," said Mark Vitner, senior economist with Wachovia Securities in Charlotte, N.C.

Patrick Fearon, senior economist at A.G. Edwards & Sons Inc. believes all the political uncertainty is also taking a toll on consumers' confidence.

"There is certainly more going on than just hurricanes and a resulting spike in gasoline prices," said Fearon. He noted President Bush's drop in approval ratings, political unrest in the Middle East and concerns about the Supreme Court nominee Harriet Miers "could weigh on people's attitudes."

Economists closely track consumer confidence because consumer spending accounts for two-thirds of U.S. economic activity.

One component of the Conference Board report, which examines consumers' views of the current economic situation, fell to 108.2 from 110.4 last month. The Expectations Index, which measures consumers' outlook over the next six months, fell to 69.5 from 72.3.

Consumers' assessment of the current employment market was somewhat bleaker than in September. The number of consumers saying jobs are "hard to get" rose to 25.3 percent from 25.0 percent, while the number saying jobs are "plentiful" was virtually unchanged at 20.8 percent.

The outlook for the labor market also worsened. The number of consumers expecting more jobs to become available in the coming months fell to 12.2 percent from 14.0 percent, while those expecting fewer jobs eased to 23.7 percent from 24.8 percent in September. The proportion of consumers anticipating their incomes to rise in the months ahead fell to 16.8 percent from 18.1 percent last month.

The Conference Board index is derived from responses received through Oct. 18 to a survey mailed to 5,000 households in a consumer research panel. The figure released Tuesday include responses from at least 2,500 households.

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