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Consumer confidence plunges

September 27, 2005

By Ellen Freilich

NEW YORK (Reuters) – U.S. consumer confidence plunged in
September, a report said on Tuesday, damaged by Hurricane
Katrina, higher gasoline prices and a more pessimistic view of
the job outlook.

The Conference Board said its gauge of consumer sentiment
“plummeted” in September to 86.6 from 105.5 in August. A
Reuters poll of economists had culled a median forecast for a
smaller, but still substantial, drop in the index to 95.0.

The business research group said the devastation from
Katrina in late August, coupled with soaring energy prices and
a souring view of employment prospects, pushed confidence to
its lowest since a reading of 81.7 in October 2003.

These factors “created a degree of uncertainty and concern
about the short-term future,” said Lynn Franco, director of the
Conference Board’s consumer research center.

Historically, though, such shocks have had a short-term
impact on confidence, especially on consumers’ expectations,
Franco added.

The group’s present situation index slumped to 108.9 in
September from 123.8 while its expectations index fell steeply
to 71.7 from 93.3.

Consumer spending is the backbone of the U.S. economy,
accounting for some two-thirds of activity, so changes in
confidence are seen as a possible precursor to softer or
stronger growth.

But Ken Mayland, president of Clearview Economics, said the
confidence plunge represented “more of an emotional response to
the recent woes and gives very little insight into consumer
spending behavior.”

VIEW OF CURRENT CONDITIONS WORSENS

Consumers’ overall assessment of ongoing conditions was
less favorable in September. Those asserting that business
conditions were good declined to 25.2 percent in September from
29.7 percent in August. Those claiming that business conditions
were bad rose to 17.7 percent from 15.1 percent.

The employment picture also bleakened in consumers’ eyes
with the portion of respondents saying that jobs were hard to
get rising to 25.4 percent in September from 23.1 percent in
August. The portion of respondents claiming that jobs were
plentiful fell to 20.1 percent from 23.6 percent.

BLEAK OUTLOOK FOR NEXT SIX MONTHS

Consumers’ outlook for the next six months turned
“considerably pessimistic,” the Conference Board said.

The proportion of consumers anticipating their incomes to
decrease in the months ahead rose to 10.8 percent in September
from 8.9 percent in August.

Those expecting business conditions to worsen jumped to
19.8 percent in September from 10.0 percent in August.

Meanwhile, respondents expecting business conditions to
improve fell to 15.3 percent from 18.7 percent.

JOB OUTLOOK SOURS

The outlook on the labor market also soured, with those
expecting more jobs to become available in the coming months
decreasing to 14.0 percent in September from 16.4 percent in
August. Those expecting fewer jobs to become available jumped
to 25.0 percent, up from 17.3 percent.




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