NEW YORK – Consumer confidence suffered its biggest drop in 15 years in September as Hurricane Katrina made Americans anxious about the rising costs of heating their homes and filling their gas tanks. The decline raised questions about consumer spending for the rest of the year, including the holiday shopping season.
Meanwhile, the government reported Tuesday that sales of new homes plunged in August by the largest amount in nine months, continuing a string of mixed signals about the health of the housing boom.
The Conference Board said its Consumer Confidence Index, compiled from a survey of U.S. households, dropped 18.9 points to 86.6 from a revised reading of 105.5 in August.
That marked the biggest slide since October 1990, when the index fell 23 points to 62.6 amid the onset of the recession, the buildup to the Gulf War and a spike in gasoline prices. The September reading was also the lowest level since October 2003, when it registered 81.7.
Analysts had expected the September reading to be 98.
Wall Street took the news fairly well. The Dow Jones industrial average, up about 30 points before the index was released, nevertheless managed to close up 12.58 points.
In Washington, D.C., Republicans were assessing the political impact of the numbers, particularly the drop in consumer confidence, saying it gives them more reason to worry about the 2006 elections.
“These are serious numbers,” said Rep. Tom Cole, R-Okla., referring to the consumer confidence figures. “The question is whether this is a trend or a reaction to Katrina and Rita.”
Cole said he suspects the public mood will improve by this time next year, when Republicans, who control Congress and the White House face the judgment of an uneasy electorate. But in the intervening months, he said, the political consequences of consumer anxiety are “real serious.”
The latest AP-Ipsos Poll, conducted Sept. 6-8, showed more Americans are uneasy about President Bush’s handling of the economy. The poll found that 41 percent of respondents approved of the president’s economic policies, while 57 percent disapproved and 1 percent were not sure. That rating was the lowest since January 2002, when Ipsos began tracking Bush’s approval ratings.
The drop in consumer confidence, which followed an unexpected gain in August, also raised concerns about shoppers’ ability to spend in the fall and holiday seasons with gas prices expected near $3 per gallon. That’s due to tight supplies and the fact it may take weeks to restart refineries that closed due to Hurricane Rita.
Even before Katrina slammed into the Gulf Coast Aug. 29, consumers were struggling to fit higher gasoline prices into their budgets, with that strain showing in August’s modest retail sales gains. Sales have been disappointing again this month, and analysts are concerned that consumers will further retrench when they start paying their home heating bills.
Economists closely track consumer confidence because consumer spending accounts for two-thirds of all U.S. economic activity.
“Today’s numbers show that consumers are not very optimistic about the economy. As a result, we will see consumer spending reduced until we see some relief on energy prices,” said Gary Thayer, chief economist at A.G. Edwards &Sons.
“If we don’t get some relief, it looks like it will be a very weak holiday season.”
In Sunday’s Herald
The recent Gulf Coast hurricanes will definitely raise home heating bills this winter. For a look at how much, see The Herald’s Page A1 on Sunday.
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