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Consumer confidence hits a low

Conference Board's index plunges to a record 38 as economic data spur pessimism.

October 29, 2008|The Associated Press

WASHINGTON — Layoffs, plunging home prices and tumbling investments have pushed consumer pessimism to record levels in October, a private research group said Tuesday. The Conference Board said the consumer confidence index fell to 38, down from a revised 61.4 in September and significantly below analysts' expectations of 52.

That's the lowest level for the index since the Conference Board began tracking consumer sentiment in 1967, and the third-steepest drop. A year ago, the index stood at 95.2.

"Consumers are extremely pessimistic," said Lynn Franco, director of the Conference Board's Consumer Research Center. "This news does not bode well for retailers who are already bracing for what is shaping up to be a very challenging holiday season."

The 23.4-point drop in the consumer confidence index from September to October is the steepest since it fell 36.9 points from October to December 1973, when the economy was in the throes of a severe recession. Then, the index was measured every two months. Consumer sentiment is closely watched because consumer spending powers about 70% of economic activity.

Household wealth has taken huge hits from the stock market's sharp drop this month along with the extended decline in home prices. The Standard & Poor's 500 index has fallen about 40% this year.

That, in turn, appears to be causing consumers to significantly scale back their expectations for the current economy and short-term future.

The Conference Board said its present-situation index declined to 41.9 in October from 61.1 last month, while the expectations index, which measures consumers' outlook for the next six months, plummeted to 35.5 from 61.5.

"These numbers are extraordinarily awful," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.

But they may not persist. The drop in the expectations index probably reflects the steep drop in stock prices this month, and that probably won't happen again, he said.

In addition, lower gasoline prices may help improve consumers' outlook, Shepherdson wrote.

But most economists expect the labor market to continue to deteriorate, with the unemployment rate projected to rise to 8% or higher next year from its current level of 6.1%.

On Tuesday, Whirlpool Corp. said it would cut 5,000 jobs. That's on top of other recent layoffs of thousands of workers by Xerox Corp., drug maker Merck & Co. and financial services firm National City Corp.

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