Consumer Confidence Drops Sharply Updated 3:00 PM ET October 31, 2000 By ADAM GELLER, AP Business Writer NEW YORK (AP) - Consumer confidence dropped sharply in October to its lowest level in a year, raising questions about the strength of the coming retail holiday season.

The New York-based Conference Board said Tuesday that its Consumer Confidence Index now stands at 135.2, a steep drop from the revised 142.5 reported in September and the record high of 144.7 registered in May and January.

The Conference Board index, based on a monthly survey of some 5,000 U.S. households, is closely watched 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 new report offers concern for retailers, said Sung Won Sohn, executive vice president and chief economist with Wells Fargo Banks in Minneapolis.

"I'm sure some of the retailers are sweating a bit too if consumers will come back shopping," Sohn said. "This could mean that we could see more discounts and promotions to move the merchandise early."

The October drop in the Consumer Confidence index was "triggered by a cooling economy and apprehension regarding soaring oil prices and volatility in the financial markets," said Lynn Franco, director of the Conference Board's Consumer Research Center. The last time it was this low was in October 1999, when it stood at 130.5.

Recent developments, including stock market jitters, a rise in jobless claims and interest rates, and the uncertainty of next week's elections made the slump in confidence almost inevitable, economists said.

Even so, a separate economic report released by the Commerce Department Tuesday showed that sales of new homes soared in September by a surprising 9.2 percent to the highest level in six months as cheaper mortgage rates encouraged buyers to lock in deals.

The markets took the economic news in stride, with the Dow Jones industrial average rising 117.55 to 10,953.32, while the tech-focused Nasdaq composite index surging 184.33 to 3,375.73.

Sohn said there are still signs consumers remain in a buying mood, albeit a more cautious one.

"If consumers are willing to buy more homes and cars they must have fairly strong confidence, otherwise they would not be making commitments for these big-ticket items," he said.

But the economy remains strong, with growth slowing to a more sustainable pace and consumers are still relatively confident, said Gary R. Thayer, chief economist for A.G. Edwards & Sons Inc. in St. Louis.

"People may not be saying things are quite as rosy as they were, but I think they're still feel pretty good about the overall economic picture," he said.

The 9.2 percent increase in new home sales, the largest since an 11 percent rise in July, was not expected. Many analysts were predicting new-home sales would fall by 0.7 percent.

Americans purchased new single-family homes at a seasonally adjusted annual rate of 946,000 in September, the highest level since a rate of 947,000 homes in March, the Commerce Department said.

New-home sales fell 5.8 percent in August, according to revised figures, a weaker performance than the 3 percent drop the government reported one month ago.

The Federal Reserve has boosted interest rates six times since June 1999 to slow the economy and keep inflation under control. The Fed's rate increases are designed to raise borrowing costs and cool demand for big-ticket items such as homes and cars. Economists believe the Fed's rate increases are working to slow economic growth. In the third quarter, the economy grew at a 2.7 percent annual rate, the slowest pace in more than a year.

Declining mortgage rates contributed to rise in new-home sales, economists said.

In September, mortgage rates continued to creep down as the moderating economy reduced pressure on long-term interest rates. The average interest rate on a fixed-rate 30-year mortgage was 7.91 percent last month, down from 8.03 percent in August, but higher than the 7.82 percent rate in September 1999.

Even so, consumer optimism about the economy has begun to wane somewhat, with more expressing doubts about business conditions and their ability to find new jobs, the Conference Board said.

Just 16.5 percent of people polled in the newest survey expect an improvement in business conditions over the next six months, down from 19 percent in September. The percentage anticipating conditions to worsen rose from 5.6 percent to 7.2 percent.

In addition, 13.1 percent of consumers surveyed say they expect fewer job openings, up from 10.9 percent last month. In another sign of dimming expectations, just 24.2 percent expect their incomes to rise, a steep drop from the 28.1 percent who shared that viewpoint in September.

http://news.excite.com/news/ap/001031/15/news-economy

-- Martin Thompson (mthom1927@aol.com), October 31, 2000

Answers

This is good news for the Bush camp. History has shown that whenever the Consumer Confidence level drops sharply the "Throw the rascals out" mantra sets in. In short, throw the incumbents out--the rascal, in this case, being Al Gore.

-- JackW (jpayne@webtv.net), October 31, 2000.