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Consumer Confidence Bounces Back

NEW YORK — The Conference Board put the grinch on hold, at least for a while, on Tuesday.<br><br>The board reported that consumer confidence rebounded in November, reversing five straight months of steady declines, as consumers became optimistic...

NEW YORK — The Conference Board put the grinch on hold, at least for a while, on Tuesday.

The board reported that consumer confidence rebounded in November, reversing five straight months of steady declines, as consumers became optimistic about the possibility of an improved labor market and their prospects for higher income, offering a glimmer of hope — the holiday season may not be as grim as many had been predicting.

The Conference Board said its monthly index of consumer confidence, based on a representative sample of 5,000 U.S. households, turned the corner as it climbed 4.5 points to 84.1 in November from a revised 79.6 in October.

Consumers assigned more upbeat ratings to both current circumstances and future prospects in November, handing some hope to retailers that the holiday season may in fact be somewhat merry after all. The Present Situation Index, the evaluation of ongoing conditions that constitutes half of the overall measure, inched up 0.4 points to 77.6 in October from 77.2 last month. The Expectations Index, the outlook for the next six months, was boosted even more, rising 7.3 points to 88.4 from 81.1.

“The rebound in expectations was driven by improvements in business conditions and income prospects,” said Lynn Franco, director of the board’s Consumer Research Center. “There is a brighter picture now than it was at the end of October.”

According to the board’s annual survey of Christmas-spending intentions, American families intend to spend 4.5 percent more on holiday gifts this year, $483 from $462 in 2001.

“While the holidays will not be a blockbuster, they will not be a bust,” Franco said.

Diane Swonk, an economist with Bank One Corp., said the upside surprise for retailers, who have battened down for among the tougher holiday selling seasons in recent memory, is that now “the season looks better, even okay.”

Sounding a cautionary note, John Lonski, an economist with Moody’s Investors Services, warned that, despite the good news in the report, the consumer confidence reading is not the type of gain that would signal an upward revision of consumer spending forecasts. “The reading still remains well under where it was early this year because the labor market still seems soft,” he said. “Retailers have got to realize that any improvement may not be great enough by itself to lift their own sales above expectations.”

He also noted that the combined October and November reading of have got to realize that any improvement may not be great enough by itself to lift their own sales above expectations.”

He also noted that the combined October and November reading of 81.85 is the lowest two-month average since the January-February 1994 average reading of 81.25, indicating that consumer spending will proceed at nothing better than a mild pace. “The warning to retailers is consumer spending will not grow as rapidly as it did during the late Nineties and early 2000,” he said. “Consumer confidence has yet to rise to a level that otherwise would be constructive for discretionary consumer spending.”

While the Dow Jones Industrial Average dropped 172.98, or 2 percent, to close at 8,676.42, retail issues fared somewhat better. The Standard & Poor’s retail index finished the day at 283.12, down 4.05 points, or 1.4 percent.

Consumers’ expectations improved over last month’s reading. Those anticipating an improvement in business conditions in the next six months rose slightly to 19.9 percent from 19.3 percent. Those expecting conditions to deteriorate fell to 11.4 percent from 14.3 percent.

The employment outlook was also more favorable this month. Consumers expecting fewer jobs over the next six months declined to 18.9 percent from 22.1 percent, while those anticipating more jobs held steady at 15.3 percent. Income expectations were more optimistic. Now, 19 percent of consumers anticipate a rise in their incomes, up from 17.9 percent in October.

The modest rise in consumers’ assessments of the present situation was due to a slight improvement in business conditions, with labor market conditions still stagnant. Consumers rating current business conditions as “bad” declined to 26 percent from 27.7 percent. Those holding the opposite view increased to 16 percent from 15.6 percent. Consumer reporting jobs are hard to get rose to 27.5 percent from 27.3 percent last month. Those claiming jobs are plentiful slipped to 14.1 percent from 14.7 percent.

Saying she was not surprised by the index’s turnaround, Swonk said consumer trepidation about bad news — corporate scandals, the sniper attacks, the now-settled dockworkers’ dispute and hints of terrorist activity in our backyards and around the globe — are starting to wear thin, allowing consumers to get back to what they like most to focus on: consuming.

“They are simply feeling better,” Swonk said, adding that the rise in equity prices has helped improve consumers’ sentiments. “Consumers have been fickle in what they say, compared to what they actually do.”