- NEW YORK (Reuters)
- Worries about jobs and a possible U.S. attack on Iraq pummeled consumer
confidence to its lowest level in nine years in October, a report said
on Tuesday, boosting chances the Federal Reserve will cut interest rates
next week.
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- Financial markets were rattled by the dramatic drop in
The Conference Board's October Consumer Confidence Index to 79.4, a low
not seen since November 1993, and far below the trough of 84.9 carved after
last year's Sept. 11 attacks on the U.S.
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- October marked the fifth straight month of losses for
the index, which came in well below forecasts for a fall to 89.7, prompting
Anthony Karydakis, senior financial economist at Banc One Capital Markets,
to label it "deeply disturbing."
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- "A weak labor market, the threat of military action
in Iraq and a prolonged decline in the financial markets have clearly dampened
both consumers' confidence and their expectations for the near future,"
Lynn Franco, director of the survey, said in a release.
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- Many economists are worried the odds of a pullback in
spending are rising right ahead of the crucial holiday retail season. The
October consumer confidence report took those concerns to a whole new level.
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- Most U.S. retailers book about a quarter of their sales
during the November-December holiday season and some make the bulk of their
profits in that period. But already many retailers are feeling the pinch
on profit margins from consumers' aggressive hunt for bargains.
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- "The outlook for the holiday retail season is now
fairly bleak," said Franco. "Without the likelihood of a pickup
in consumer spending, an already weak economic recovery could weaken further."
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- Consumer spending makes up about two-thirds of the $10
trillion U.S. economy and has been practically the sole driver of economic
growth since last year's recession as businesses, bereft of any ability
to raise prices, slash their costs.
-
- Evidence that spending may cool in the months ahead was
seen in a deterioration in consumers' expectations for income gains and
employment -- the prime drivers behind consumers' ability to spend.
-
- U.S. Treasuries rallied after the data were released
as market participants piled on bets the Fed will cut rates as early as
next week. The Dow Jones industrial average .DJI tumbled after the data
and the dollar was not far behind.
-
- "The dominoes are falling one by one and the consumer
is just the latest. You should expect the Fed to cut rates on November
6, probably by 50 basis points," said Ram Bhagavatula, chief economist
at Royal Bank of Scotland Financial Markets.
-
- Interest rate futures were factoring in about a 90 percent
chance the Fed will cut rates next week. That compares with less than 50-50
odds late last week.
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- WORRIED ABOUT NOW, AND THEN
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- The Present Situation Index, a measure of consumers'
attitudes about the economy and their finances right now, plunged to its
lowest level since early 1994, to 77.5 in October from 88.5 in September.
The Expectations Index, a gauge of consumers' six-month outlook, fell to
80.7 from 97.2.
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- Consumers' worries about the job market also increased
to their highest level since 1994. The jobs-hard-to-get index rose to 27.3
from 25.4 percent in September. A rise in this index often foreshadows
a move up in the jobless rate, which currently stands at 5.6 percent.
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- The government is expected to release its report on the
employment situation for October on Friday. It is expected to be weak.
While consensus forecasts are for a meager 7,000 net job gain during the
month, many economists are expecting hefty losses, according to a recent
Reuters poll.
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- The jobless rate is expected to rise to 5.8 percent.
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- Consumers' plans to buy a new home or car also fell during
the month, raising concerns about two areas of the economy that have been
firing on all cylinders.
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- Now only 17.8 percent of consumers expect a rise in incomes
over the next six months, The Conference Board said, down sharply from
21.5 percent in the prior month.
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- Other measure of confidence are likewise plunging, including
the University of Michigan's index which also hit a nine-year low in October.
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- "Unless the downward momentum is quickly halted,
the accumulated loss in consumer confidence could tip the economy back
into recession," Richard Curtin, director of the University of Michigan
survey said on Monday.
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