New York Times
Tuesday 25 February 2003
Consumer confidence plunged in February to its lowest level in more than nine years, the Conference Board reported today, as concerns about a war with Iraq, rising energy prices and jobs took a toll on attitudes.
The consumer confidence index, a monthly measure, fell to a reading of 64 from 78.8 in January.
The drop is the second-biggest ever. Following the Sept. 11, 2001, terrorist attacks, the Conference Board's index fell by 17 points. The February reading was the third straight month in which consumers expressed waning optimism about their immediate and medium-term prospects.
Economists had expected the index to register a decline, but the magnitude of what the Conference Board's survey showed was much greater than forecasts. The consensus estimate was a drop in the index to 77.
The Conference Board surveys 5,000 households about general economic conditions, their employment prospects and their spending plans.
The Conference Board reading follows by two weeks a similarly grim assessment of consumer attitudes by the University of Michigan.
The news was not well received in the stock market.
Major market indexes, which have been under pressure due to uncertainty about a possible war, moved sharply lower after the confidence data were released.
By early afternoon, the Dow Jones industrial average, the Standard & Poor's 500 index and the Nasdaq composite index were all down by more than 1 percent.
Consumer attitudes could shift quickly if certain things, like a quick, successful prosecution of war in Iraq were to happen soon.
But analysts said the uncertainty, coupled with the income-crimping reality of dealing with high energy prices, has put the economy in jeopardy.
"The uncertainty factor is obviously bad news for confidence," said Richard Berner, chief U.S. economist at Morgan Stanley.
"And the energy shock we are experiencing is also bad news for the economy and spendable income."
Mr. Berner said that as a result of these factors, he has recently revised downward his growth forecast for the first half of the year to a level he called "stall speed."
"The economy is very vulnerable," he said.
Still, the Morgan Stanley analyst was unwilling to say the economy is on the verge of tipping back into recession.
"The odds of the economy rolling over are less than 50-50, and probably one in four," he said. "But none of us anticipated the perfect storm we have had in energy prices, with the price of crude oil, natural gas and heating oil all shooting up like this."
Last week, the Labor Department reported that retail gasoline prices shot up 6.6 percent in January, while heating oil costs jumped 8.6 percent.
So far this month, the average price of a gallon of gasoline has risen to its highest level since June of last year, according to data from the Department of Energy.
Mr. Berner said the increase in energy prices has been big enough to shave 1 percentage point off his growth forecast.
Currently, he anticipates the economy to expand at a 1.8 percent annual rate in the first quarter, but then slow to a 0.6 percent rate of increase in the second quarter.
Research has shown that consumer confidence readings correlate more closely with current spending than future spending. And thus far this quarter data show that consumers have been confident enough to make major purchases. Sales of new and existing homes remain strong, for example.
Still, the readings on what consumers expect in the near-term future were not reassuring: the percentage of those surveyed who expect their incomes to increase six months from now fell to their lowest level since the Conference Board began collecting the data in 1967.
And the component of the confidence index that tracks consumers' present situation fell to 61.6 in February, its lowest level since November 1993.
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