Consumer index hits 8-month low

Drop in confidence linked to higher energy prices

December 01, 2004|By BLOOMBERG NEWS

NEW YORK - The Consumer Confidence Index unexpectedly fell last month to the lowest level in eight months as higher energy prices damped optimism among low-income Americans.

The Conference Board reported yesterday that its index dropped to 90.5 from 92.9 in October, suggesting that retail sales are poised to slow.

In another development, the Commerce Department reported that the gross domestic product - the value of all goods and services produced in the United States - increased at an annual rate of 3.9 percent in the third quarter.

The new GDP figure was up from an initial estimate of a 3.7 percent growth rate for the July-through-September quarter and was better than a 3.3 percent pace posted in the second quarter. The Conference Board index found that confidence had declined among those who earn less than $35,000 a year. The decline was more pronounced for those making less than $15,000. Sentiment rose among consumers who earn more than $35,000, and was highest for those who earn more than $50,000.

The Conference Board's Consumer Confidence Index is derived from a survey based on a representative sample of 5,000 U.S. households.

"During this Christmas season, that's all you're hearing, that people who earn below $35,000 and the stores that serve them are hurting, Wal-Mart being the prime example," said Delos Smith, a Conference Board economist. In particular, he said, the 55 percent rise in crude oil prices this year "really hurts those with lower incomes."

Wal-Mart Stores Inc., the world's largest retailer, now expects same-store sales in November to be up only 0.7 percent, instead of the projected 2 percent to 4 percent.

By contrast, sales at the upscale department store chain Nordstrom Inc. have risen an average of 7.8 percent a month for the past four months.

U.S. stocks fell amid concern that higher energy costs are hurting retail sales. The Standard & Poor's 500 index declined 4.75 points to close at 1,173.82, and the Dow Jones industrial average dropped 47.88 to 10,428.02.

The Commerce Department report attributed the increase in GDP in the third quarter to a 5.1 percent rise in consumer spending, the most in almost three years.

"Today's report illustrates the strength of the U.S. economy, and shows how its underlying fundamentals are ensuring sustainable, non-inflationary growth," Treasury Secretary John W. Snow said in a statement. Consumer spending "is a major key to our economy's strength."

The increase in consumer spending accounted for 3.5 percentage points of the increase in economic growth in the quarter. Initially, an increase of 4.6 percent in consumer spending was projected. The rise was the biggest since the last recession ended in the fourth quarter of 2001, accelerating from a 1.6 percent pace in the second quarter.

"The economy still is doing reasonably well, and we have seen some recovery in employment, but there's a lot of concern right now," said Ron Marshall, chief executive at Nash Finch Co., which distributes food to stores and military bases. Consumers have "nothing left to borrow, and whatever discretionary income they have left is being absorbed by higher fuel costs."

The Conference Board report found that optimism about the economy over the next six months had declined, along with the percentage of people who plan to buy new cars, homes and appliances.

The percentage of people who said they would buy cars in the next six months fell to 4.2 percent from 7.6 percent in October, the board's survey found. Those saying they planned to buy a home fell to 2.4 percent from 3.6, and the percentage saying they planned to buy a major appliance dropped to 24.2 from 27.8.

The Conference Board report showed a darkening view of the labor market. The percentage of people who see jobs as hard to get rose to 28.1 from 27.9 in October, while the percentage who expect fewer jobs to be available six months from now rose to 19.7 last month from 18.3 in October, when the Labor Department reported that 337,000 jobs were created.

The percentage of people saying they expect incomes to fall over the next six months rose to 11 from 9.5.

Overall, the Conference Board's index of consumer expectations for the next six months fell to 87.4, the lowest since July last year, from 92.2 in October.

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