NEW YORK – Consumers’ renewed worries about job prospects led to a bigger than expected drop in confidence in August, and provided more evidence of the fragility of the economic expansion.
The Consumer Confidence Index, which had been rising since April, dropped 7.5 points to 98.2 from a revised reading of 105.7 in July, according to a report Tuesday from the Conference Board, a private research group.
The reading was well below the 103.5 that analysts expected, and was the lowest since May, when it registered 93.1.
“The slowdown in job growth has curbed consumers’ confidence,” said Lynn Franco, director of the Conference Board’s Consumer Research Center, in a statement. “The level of consumer optimism has fallen off, and caution has returned. Until the job market and pace of hiring picks up, this cautious attitude will prevail.”
Economists closely track consumer confidence because consumer spending accounts for two-thirds of U.S. economic activity.
The report of the surprising large decline came a day after the Commerce Department said consumers spent more freely in July, raising hopes that June’s economic pause would only be temporary. However, the government disclosed at the same time that personal incomes grew slower than analysts had expected in July.
But some economists were not deeply concerned about the dip in confidence.
Mark Vitner, an economist at Wachovia Securities, sees the latest snapshot of consumer confidence as only a “bump in the road,” and expects that the index will rebound in September.
“Consumers still sense that the recovery is on track, and they are expressing their concerns on the lack of job growth,” he said.
Michael Niemira, chief economist at the International Council of Shopping Centers, believes that when taking the numbers in context with the big rise in consumer confidence levels in June and July, “they’re not as bad as they might appear.” Consumer confidence jumped to 102.8 in June from 93.1 in May.
The consumer confidence report – whose cutoff date for preliminary results was Aug. 24 – captures the period when oil prices surged, briefly topping $49 a barrel, before falling dramatically at the end of the month.
However, Franco said she hasn’t seen the surge in oil prices taking a “bite out of confidence” in surveys with consumers. Rather, she said, consumers’ overall job outlook is what’s hurting confidence, because “it is a source of spending and income.”
Meanwhile, the International Council of Shopping Centers cut its August retail sales forecast on Tuesday to 1.5 percent to 2 percent, from the original forecast of 3.5 percent. A number of factors helped dampen sales, including Hurricane Charley, a late Labor Day weekend, higher gasoline prices and a lack of child tax rebate checks, which boosted business in the year-ago period.
“There’s been too much noise in August to tell whether there is a real pull-back from consumers or whether it is because of all these factors,” Niemira said.
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