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Consumer confidence drops on job fears, worries about business health

Posted: Thursday, April 26, 2001

NEW YORK (AP) -- Consumer confidence tumbled in April, following a brief rebound the previous month, as Americans grew more doubtful about the economy and job prospects.

The Conference Board said Tuesday that its Consumer Confidence Index fell to 109.2 in April, down from a revised 116.9 in March.

''Deteriorating business conditions and a less favorable job market are the two critical reasons for the latest decline in confidence,'' said Lynn Franco, director of the Conference Board's Consumer Research Center. ''It's clear that consumers have begun to worry about employment trends and these concerns are gnawing away at consumer confidence.''

The April confidence survey was completed April 17, the day before the Federal Reserve's surprise cut in interest rates, Franco said. The Fed has cut interest rates four times this year -- a half percentage point each -- in an effort to reinvigorate the struggling U.S. economy.

U.S. markets were moderately higher following the release of the report, with the Dow Jones industrial average up 87 points to 10,619 and the tech-heavy Nasdaq composite index up 25 points to 2,084.

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 to its base year, 1985, when it stood at 100.

The Federal Reserve has cut interest rates four times this year in an effort to reinvigorate the struggling U.S. economy.

Analysts believe Fed officials clearly had investors in mind in the timing of last week's cut, hoping to bolster consumer confidence, which has been sagging as Americans watched trillions of dollars of paper wealth evaporate over the past year.

But Franco said she does not expect the recent cut to have much impact on confidence, because a similar drop in rates in January did little to boost optimism among consumers.

Economist Joel Naroff said the April drop shows that, even with the stock market appearing to stabilize, consumers are increasingly unsure about their own financial and job security.

''What we're seeing is the delayed impact of the movement from hearing about layoffs to the actual layoffs, and ultimately that effect on households, which are beginning to see some people lose their jobs,'' said Naroff, of Naroff Economic Advisors in Holland, Pa.

''It doesn't indicate that households are going to dramatically start cutting back spending, but this does tells us that consumption at least in this quarter, isn't going to be that great,'' Naroff said.

The drop returned consumer confidence to the same level it was in February, reflecting increasing pessimism about current and future business conditions. Analysts were expecting a decline, but only to 114.

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On the Net: http://www.conferenceboard.org



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