Consumer confidence keeps plunging

Associated Press

NEW YORK — Americans’ growing fears about anthrax and job security in the wake of the Sept. 11 terrorist attacks dragged down consumer confidence in October to its lowest level in 7 1/2years, suggesting the economy will take longer than anticipated to rebound.

The New York-based Conference Board said Tuesday that its Consumer Confidence Index plunged to 85.5 from 97, well below the 96 reading analysts had predicted.

"We obviously expected consumer confidence to be shaken, but not this badly," said Oscar Gonzalez, an economist at John Hancock Financial Services in Boston. "This is a very worrisome report."

Stocks moved lower on the news. The Dow Jones industrial average closed down 148 points, or 1.6 percent, at 9,122, while the Nasdaq composite index ended 32 points, or 1.9 percent, lower at 1,667.

The 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 index compares results to its base year, 1985, when it stood at 100. The October figure is the lowest since February 1994.

Consumer spending has been one of the main factors preventing the economy from sliding into recession. But many economists now believe a recession is inevitable after the attacks on the World Trade Center and the Pentagon.

Companies have slashed hundreds of thousands of jobs since then. But they had already started trimming payrolls long before the attacks in response to an economic slowdown that weakened earnings and sent stock prices lower.

To help revive the economy, the Federal Reserve has cut interest rates nine times this year, with two reductions coming after the attacks. A 10th cut is expected when policymakers meet next month.

"Consumer spending has slowed over the past year, but overall it has held up reasonably well and it kept the economy afloat," Gonzalez said. "If jobs start disappearing at a rapid pace, we could see a sharper pullback in spending and a downward spiral that not even (Federal Reserve chairman Alan) Greenspan can stop."