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Home / Government / Consumer confidence falls sharply (11:29 a.m. 2/23/10)

Consumer confidence falls sharply (11:29 a.m. 2/23/10)

By Anne D’Innocenzio
AP Retail Writer

New York — Americans’ outlook on the economy went into relapse in February. Rising job worries sent a key barometer of confidence to its lowest point in 10 months, raising concerns about the U.S. economic recovery.

The Conference Board’s Consumer Confidence Index fell almost 11 points to 46 in February, down from a revised 56.5 in January, according the board. Analysts were expecting only a slight decrease to 55. It was the lowest level since the index recorded a 40.8 reading in April 2009.

A for sale sign advertises a new price Monday for a home on the market in Houston. Home prices rose 0.3 percent in December, the seventh straight monthly increase, according to the Standard & Poor's/Case-Shiller 20-city home price index. (AP Photo by Pat Sullivan)
A for sale sign advertises a new price Monday for a home on the market in Houston. Home prices rose 0.3 percent in December, the seventh straight monthly increase, according to the Standard & Poor’s/Case-Shiller 20-city home price index.
(AP Photo by Pat Sullivan)

The increasing pessimism, which erased three months of improvement, is a big blow to hopes that consumer spending will power an economic recovery. Economists watch the confidence numbers closely because consumer spending accounts for about 70 percent of U.S. economic activity.

The February reading is a long way from what’s considered healthy: A reading above 90 means the economy is on solid footing. Above 100 signals strong growth.

While economists said that heavy snowstorms in many areas of the country that shut down businesses dampened confidence, many said the report confirms that consumers aren’t feeling the nascent economic recovery.

“More than six months after the recovery started, consumer confidence is still close to a record low,” said Paul Ashworth, senior U.S. economist at Capital Economics Ltd. “Without a sustained acceleration in consumption growth, this recovery will eventually fade.”

One gauge, measuring consumers’ assessment of current conditions, dropped to 19.4 from 25.2, the lowest level since 1983. The other barometer, which measures their outlook over the next six months and had been rising since October 2009, fell to 63.8 from 77.3.

The Consumer Confidence Index hit a historic low of 25.3 in February 2009 but then enjoyed a three-month climb to 54.8 in May, fueled by signs the economy might be stabilizing. Since then, it has been mired in a narrow range, dropping as low as 47, as rising unemployment took a toll, before climbing again for a three-month stretch.

The downbeat report on confidence came amid encouraging news about the housing market. According to a key housing index, home prices rose for the seventh straight month in December, a sign of price stability as the U.S. housing market continues its bumpy recovery.

The Standard & Poor’s/Case-Shiller 20-city home price index rose 0.3 percent from November to December, to a seasonally adjusted reading of 145.87. The index was off 3.1 percent from December last year, nearly matching analysts’ estimates that it would fall by 3.2 percent.

But a solid job market is critical to consumers’ boosting their spending and the overall of health of the economy.

The overall economy expanded at an annual rate of 5.7 percent in the fourth quarter, but only about one-fourth of that growth came from consumers. That marked the second quarterly increase in a row after four quarters of decreases.

Many economists expect new jobs to be created in coming months. Unemployment fell to 9.7 percent in January from 10 percent in December, and employers shed 20,000 jobs. But they still worry that joblessness will climb back up by next summer as unemployed people who abandoned job searches start trying again.

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