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Consumer Confidence Drops Again

Economy: Report shows a decline in optimism in April, adding to expectations for further Fed rate cuts.

April 25, 2001|ROSS FINLEY | REUTERS

NEW YORK — Consumer confidence tumbled again in April as deteriorating business conditions and job insecurity soured March's more upbeat mood, a report that cemented expectations for more interest rate cuts from the Federal Reserve.

The Conference Board said Tuesday its broad index of consumer attitudes slid to 109.2 in April, matching a 4 1/2-year low hit in February and compared with a downwardly revised 116.9 in March. The survey was conducted before the Federal Reserve surprise half-point interest rate cut last week.

The drop in confidence in April was the sixth decline in seven months, and the reading was weaker than the 112.0 forecast by economists in a Reuters poll.

"On balance, consumers are becoming more realistic about the job market," said Stan Shipley, senior economist at Merrill Lynch. "While consumer appraisal of employment opportunities is still high, it has deteriorated sharply over the last six months."

Analysts and Fed officials closely watch consumer confidence, particularly in times of economic uncertainty, because it can sometimes affect consumer spending, which accounts for about two-thirds of economic growth.

Job market worries amid mounting corporate layoffs--not stock market jitters--accounted for most of the April fall, said Lynn Franco, director of the Conference Board's Consumer Research Center.

Consumers' assessment of their present financial picture was grimmer than expectations for the future, she added.

"Consumers are rating current conditions less favorably than they have over the last several months, so the economy is still growing at a sluggish pace. And their expectations also have weakened," Franco said.

The expectations index on the economic outlook for the next six months fell to 78.2 in April from a downwardly revised 83.1 in March. The drop-off was more severe in the present situation index, which tumbled nearly 12 points to 155.6 from an upwardly revised 167.5 in March.

Franco said the present situation index, which was the lowest since October 1997, was "certainly not near levels that we've seen prior to a recession, but it is a rather large drop and somewhat alarming."

Franco added that she doubted the survey's slide would have been stemmed much had it been conducted after the Fed's surprise rate cut, given that two half-point reductions in January failed to cushion a steep drop-off in confidence in February.

As long as unemployment continued rising, market analysts said confidence would gradually slide, explaining why financial markets had not reacted as strongly to the report as they have to drops in confidence in previous months.

Consumers, however, remained resilient as retail sales at discount, chain and department stores rose in the first two weeks of April, other reports showed. Warmer weather spurred sales of goods such as outdoor furniture and spring clothes.

The Bank of Tokyo-Mitsubishi and UBS Warburg report said chain store sales rose 0.4% during the week ended April 21, with most stores meeting sales targets.

Instinet Research's Redbook Retail Sales Average rose 1.2% during the first two weeks compared with the same period in March, with many retailers slightly beating their sales targets.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Consumer Confidence

From a monthly survey of 5,000 U.S. households.

Index: 1987=100.

*

April: 109.2

Source: Conference Board

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