Consumer confidence sinks

NEW YORK — Consumer confidence weakened in August as Americans focused on turbulent financial markets, a decline in home prices and tighter credit standards.

The New York-based Conference Board said Tuesday its Consumer Confidence Index, declined to 105.0 from a revised reading of 111.9 in July, which was still a six-year high.

Although the index was down, it was slightly stronger than the 104.5 that Wall Street analysts expected.

“A softening in business conditions and labor market conditions has curbed consumers’ confidence this month,” said Lynn Franco, director of The Conference Board Consumer Research Center. “In addition, the volatility in financial markets and continued subprime housing woes may have played a role in dampening consumers’ spirits.”

The survey is closely watched because consumer spending represents two-thirds of the U.S. economy and confidence levels tend to influence spending.

“It was down, but that was widely expected with what’s going on with housing,” said Richard Huber, an economist with A.G. Edwards in St. Louis. “That’s weighing on consumers.”

While lower, the August reading allows Federal Reserve policymakers to take a wait-and-see approach about cutting short-term interest rates, which have held steady at 5.25 percent since June 2006, when the Federal Open Market Committee meets Sept. 18, Huber said.

“It removes their having to cut rates because of a broad-based consumer confidence meltdown,” Huber said.

The Present Situation index, which measures how shoppers feel now about economic conditions, decreased to 130.3 in August from 138.3 in July.

The Expectations Index, which measures shoppers’ outlook for the next six months, fell to 88.2 from 94.4.

Consumers’ assessment of the labor market only weakened slightly. Those saying jobs are “hard to get” increased to 19.7 percent in August from 18.7 percent. Those saying jobs are plentiful fell to 27.5 percent from 30.0 percent in July and those saying jobs are not so plentiful rose to 52.8 percent from 51.3 percent.

A separate report released Tuesday said U.S. home prices fell 3.2 percent in the second quarter, the steepest decline since Standard &Poor’s began its nationwide housing index in 1987.

MacroMarkets LLC Chief Economist Robert Shiller, an architect of that report, said the declining residential real estate market “shows no signs of slowing down.”

The consumer confidence survey from the Conference Board is based on a representative sample of 5,000 U.S. households to measure consumer sentiment on present economic conditions and the spending outlook for the next six months. The index was based at 100 in 1985.

After five years of rapidly rising prices, the housing market has stalled as consumers who borrowed at adjustable rates find it difficult to meet monthly payments that spiked and a growing number of homes have fallen into foreclosure. Lenders have tightened credit standards making it harder for potential home buyers to obtain a loan and for homeowners with shaky credit to refinance.

The problems seeped into the broader market as the value of investments backed by mortgages plunged sending stocks on a volatile ride for several weeks, until calming somewhat when all three major indices rose last week — the stock market’s strongest in a month.

Stocks fell Tuesday. Minutes from the Aug. 7 Federal Open Market Committee meeting failed to reassure investors the Fed will definitely cut interest rates to calm the market. According to the minutes, the committee held out hope for “a return to more normal market conditions” without any intervention.

Ten days later, the Federal Reserve stepped in by lowering the interest rate it charges banks for loans, and it has pumped billions of dollars into the U.S. financial system to alleviate any cash-flow problems.

Economists and investors believe the odds are rising the Fed will lower the interest rate banks charge each other on overnight loans, its main tool for influencing overall economic activity, on or before its Sept. 18 meeting.

In late afternoon trading, the Dow fell 280.28, or 2.10 percent, to 13,041.85. Broader stock indicators also fell. The Standard &Poor’s 500 index lost 34.43, or 2.35 percent, to 1,432.36, and the Nasdaq composite index shed 60.61, or 2.37 percent, to 2,500.64.