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Consumers still show lack of confidence

Anne D’Innocenzio
AP Retail Writer

New York — Americans’ confidence in the economy eroded further in July as worries about job security offset any enthusiasm about the resumed stock market rally that bolstered retirement accounts.

The New York-based Conference Board reported Tuesday its Consumer Confidence Index, which retreated last month, fell to 46.6, down from 49.3 in June. It would take a reading above 90 to signal that the economy is on solid footing.

The second straight month of decline follows an upswing in confidence this past spring fueled by a stock market rally and some signs that the economy was improving.

The disappointing report on sentiment followed an upbeat report on the housing market, also released Tuesday, that offered more evidence that the real estate market was showing signs of life. According to a widely watched housing price index, home prices in May posted their first monthly increase since summer 2006, indicating prices might finally be stabilizing.

But clearly, shoppers are looking past surging stock prices and a stabilizing housing market and remain nervous about their own financial security because of mounting job losses.

And the job cuts keep coming. Verizon Communications Inc. reported Monday that it plans to slash more than 8,000 employee and contractor jobs before the end of the year.

Americans’ lack of confidence presents a big hurdle for retailers and other businesses because consumer spending accounts for more than 70 percent of economic activity.

“Consumer confidence is a reality check for folks,” said Mark Vitner, senior economist at Wells Fargo. “Even though we have seen an improvement in economic indicators, there hasn’t been any meaningful improvement in household finances.

“Consumers are not in the position to step up their spending in a major way.”

Both components of the consumer confidence gauge fell this month. According to the Conference Board, The Present Situation Index, which measures shoppers’ assessment of the economy, declined to 23.4 from 25.0 last month. The Expectations Index, which measures shoppers’ outlook over the next six months, fell to 62 from 65.5 in June.

The good news is that the housing market is showing some signs of stabilization, though it’s far from being healthy. The Standard & Poor’s/Case-Shiller home price index of 20 major cities rose 0.5 percent from April but was still 17.1 percent below May a year ago.

Thirteen cities showed monthly increases, with the best results in Cleveland, Dallas and Boston.

The 10-city index rose 0.4 percent from April, but was off 16.8 percent from May last year. It was the fourth consecutive month both indexes showed slowing price declines.

The data followed a report, released Monday, by the Commerce Department that showed new home sales increased last month at the fastest pace in more than eight years as buyers took advantage of bargain prices.

While home prices are still falling around the country, sales have now risen for three consecutive months.

But economists say they believe an improving job picture is what’s vital in boosting consumer confidence and boosting consumer spending. Job security is a key factor in shoppers’ willingness and ability to buy.

Vitner said he does not believe the job market will start to bottom out until mid-2010 and does not expect confidence to return to healthy levels of at least 90 until 2011 or 2012.The Consumer Confidence survey, which was sent to 5,000 households with a July 21 cutoff date for responses, showed looming fears about job security. Those claiming jobs are “hard to get” increased to 48.1 percent from 44.8 percent, while those claiming jobs are “plentiful” decreased to 3.6 percent from 4.5 percent.

AP Real Estate writer J.W. Elphinstone contributed to this report in New York.

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