Consumer confidence hits lowest level in four years

Posted: Friday, February 02, 2001

NEW YORK (AP) -- Growing fears of a recession sent consumer confidence plunging in January to its lowest level in four years.

The survey by the Conference Board was released Tuesday as the Federal Reserve opened a two-day meeting to decide whether to cut interest rates for the second time this month to revitalize the staggering U.S. economy. An announcement is expected Wednesday.

Federal Reserve Chairman Alan Greenspan said last week that he did not believe ''the fabric of consumer confidence'' had been shaken enough to bring on a recession.

The Conference Board reported that its Consumer Confidence Index dropped more than 14 points to 114.4 in January, the lowest level since December 1996, when it was 114.2.

The decline heightens fears about the fragility of the economy, with consumers decidedly more pessimistic about business and employment conditions, said Lynn Franco, director of the Conference Board's Consumer Research Center.

''Since apprehension leads to caution and cautious consumers spend less than the confident ones, confidence levels in February will be carefully watched,'' Franco said. ''Further erosions in consumer confidence will create more serious concerns about the overall health of the economy.''

But economists noted that consumers still view the current situation in relatively favorable terms, with their doubts focused on the future. The question is whether consumers will act on those fears.

''Historically, when we see confidence decline, we have to watch and see if it shows up also affecting spending,'' said Gary Thayer, chief economist with A.G. Edwards & Sons in St. Louis.

The Conference Board index, based on a monthly survey of some 5,000 U.S. households, is considered a key indicator because consumer spending accounts for about two-thirds of the nation's economic activity. The index compares results with its base year, 1985, when it stood at 100.

Consumer confidence has fallen four months in a row since the index hit 142.5 in September.

The Conference Board said consumers' expectations for the next six months have worsened. Of those surveyed, 15.7 percent expect business conditions to worsen, compared with 10.1 percent last month.

Only 12.4 percent of consumers expect conditions to improve, down from 16.9 percent last month. The board also said 21.8 percent of consumers expect fewer jobs to become available, up from 15.7 percent in December.

The markets were mixed following the release of the report, with the Dow Jones industrial average closing up 179.01 at 10,881.20. The Nasdaq composite index was essentially unchanged, up 0.01 at 2,838.35, while the broader Standard & Poor's 500 index advanced 9.56 to 1,373.73.

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