NEW YORK — Americans’ confidence in the economy eroded further in July as worries about job security offset any enthusiasm about the resumed stock market rally that has helped bolster retirement accounts.
The souring outlook presents yet another obstacle for stores’ critical back-to-school season.
The New York-based Conference Board said today that its Consumer Confidence Index, which retreated last month, fell to 46.6, down from 49.3 in June. Economists surveyed by Thomson Reuters were expecting a reading of 49. It would take a reading above 90 to signal that the economy is on solid footing.
The second straight month of decline follows an upswing in confidence this past spring fueled by a stock market rally and some signs that the economy was improving.
The disappointing report on sentiment followed an upbeat report on the housing market, also released today, that offered more evidence that the real estate market was showing signs of life. According to a widely watched housing price index, home prices in May posted their first monthly increase since the summer of 2006, indicating prices may finally be stabilizing.
But clearly, shoppers are looking past surging stock prices and a stabilizing housing market and remain nervous about their own financial security because of mounting job losses.
And the job cuts keep coming. Verizon Communications Inc. said Monday that it plans to slash more than 8,000 employee and contractor jobs before the end of the year.
Americans’ lack of confidence presents a big hurdle for retailers and other businesses because consumer spending accounts for more than 70 percent of economic activity.
“Consumer confidence is a reality check for folks,” said Mark Vitner, senior economist at Wells Fargo. “Even though we have seen an improvement in economic indicators, there hasn’t been any meaningful improvement in household finances. Consumers are not in the position to step up their spending in a major way.This doesn’t bode well for the back-to-school season.”
At midday, the Dow Jones industrial average fell 93 points at 9,015, after rising 14 point ahead of the news. Over the past two weeks, better-than-expected earnings reports from companies across almost every industry have reignited the stock market rally. The average topped 9,000 Thursday for the first time since early January, but worries about the economy are putting the rally on hold again.
Both components of the consumer confidence gauge fell this month. According to the Conference Board, The Present Situation Index, which measures shoppers’ current assessement of the economy, declined to 23.4 from 25.0 last month. The Expectations Index, which measures shoppers’ outlook over the next six months, fell to 62 from 65.5 in June.
“Consumer confidence, which had rebounded strongly in late spring, has faded in the last two months,” Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.
She noted that the decline in the Present Situation Index was caused primarily by a worsening job market. The deteriorating outlook for consumers was “more the result of an increase in the proportion of consumers expecting no change in business and labor market conditions.” However, Franco said, “More consumers are pessimistic about their income expectations, which does not bode well for spending in the months ahead.”
The good news is that the housing market is showing some signs of stabilization, though it’s far from being healthy. The Standard &Poor’s⁄Case-Shiller home price index of 20 major cities rose 0.5 percent from April to a reading of 139.84 but was still 17.1 percent below May a year ago.
Thirteen cities showed monthly increases, with the best results in Cleveland, Dallas and Boston.
The 10-city index rose 0.4 percent from April, but was off 16.8 percent from May last year. It was the fourth consecutive month both indexes showed slowing price declines.
The data followed a report, released Monday, by the Commerce Department that showed that new home sales increased last month at the fastest pace in more than eight years as buyers took advantage of bargain prices. While home prices are still falling around the country, sales have now risen for three consecutive months.
But economists believe that an improving job picture is what’s vital in boosting consumer confidence and boosting consumer spending. Job security is a key factor in shoppers’ willingness and ability to buy. Vitner says he doesn’t believe that the job market will start to bottom out until mid-2010 and doesn’t expect confidence to return to healthy levels of at least 90 until 2011 or 2012.
The Consumer Confidence survey, which was sent to 5,000 households with a cutoff date for responses of July 21, showed looming fears about job security. Those claiming jobs are “hard to get” increased to 48.1 percent from 44.8 percent, while those claiming jobs are “plentiful” decreased to 3.6 percent from 4.5 percent.
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