NEW YORK — Consumer confidence paralleled the stock market in July, dragging the monthly measure of public economic sentiment to its third biggest drop in the past 12 months and its lowest reading since February, and placing spending for the second half at greater risk of a downturn.

The Conference Board’s index of consumer confidence, which is based on a representative sample of 5,000 U.S. households, fell a worse-than-expected 9.2 points this month to 97.1 from a downwardly revised 106.3 in June. July’s decline does not include the equity markets’ extreme volatility between July 19 and 22. The reading dropped 11.7 points in October and 17 points in September 2001. February’s mark was 95.0.

"The erosion in consumer confidence represents a significant deterioration in consumer attitudes," said Lynn Franco, director of The Conference Board’s Consumer Research Center. "The continued decline in the value of stock market portfolios, coupled with ongoing reports of corporate scandals, have taken a toll on consumer confidence."

The result for July puts the spotlight on August, when economists and investors will be anxious to see if consumer confidence rebounds or continues on a downward path. While July’s reading is not alarming by historical standards, a continued slide could jeopardize the economic recovery.

Acting to reassure investors against the backdrop of corporate accounting scandals that have pummeled the markets, President Bush signed into law Tuesday a far-reaching statute that seeks to crack down on corporate fraud.

"This law says to every dishonest corporate leader: You will be exposed and punished," Bush said before the signing in the East Room of the White House. "The era of low standards and false profits is over. No boardroom in America is above or beyond the law."

Nevertheless, investors hoping to see Monday’s rally sustained for a second session were disappointed. Instead, the Dow Jones Industrial Average finished the day at 8,680.03, down 31.85 points, or 0.4 percent, as the Nasdaq managed a 8.94, or 0.7 percent, gain to close at 1,344.19.

The close association between consumer confidence and spending was reflected in a drop in the Standard & Poor’s Retail Index, which declined 3.36, or 1.2 percent, to 286.42. The S&P 500 finished Tuesday with a 3.83, or 0.4 percent, gain, winding up at 902.78.In the Conference Board survey, consumers’ assessments of current and future conditions were both less favorable in July, suggesting that consumers might curb spending in the absence of offsetting incentives. The Present Situation Index, the evaluation of ongoing conditions that constitutes half of the overall index, fell 5.7 points to 99.2 in July from 104.9 in June. The Expectations Index, the outlook for the next six months that constitutes the other half, dropped 11.5 points to 95.7 from 107.2.

Calling the monthly reading a "worrisome development," John Lonski, an economist with Moody’s Investors Services, said, "The warning here is U.S. consumer spending is vulnerable to a near-term slowing, especially as long as we have weakness in the equity market." He noted he was hoping the index would manage to stay above 100 points.

Lonski noted confidence peaked along with the equity markets in March. However, since then, stock prices are off 22 percent in value and consumer confidence has slid 12 percent.

Consumers’ latest attitudes about the labor market are also a concern as a smaller percentage said jobs were plentiful and a larger number characterized them as hard to get, the weakest assessment since November 2001, despite the fact that the number of applications for jobless claims has been declining for the past two months and initial state unemployment claims have dropped. "You look at the equity market and consumers concluded it is getting harder to get a job," Lonski said.

For retailers, the selling environment will remain challenging as consumer spending at stores in July slowed, reinforcing the drop in confidence. According to The Instinet Research Redbook Average of retail chain sales, month-to-month comparable-store sales in July were up 1.7 percent from last July, compared with a 2.4 percent target, and down 0.4 percent from June.

On the bright side, Lonski said the consumer confidence index for July was still above its average from the final quarter in 2001, in the immediate aftermath of Sept. 11. Also, although the reading was down significantly from June, Lonski said it is still better, by a whopping 49 percent, than the average reading from the first 33 months of the previous economic recovery from 1991 to 1993. "Consumer confidence during the early stages of the new economic recovery is faring much better than it did during the first several years of the previous one," Lonski said.Consumers’ expectations for the next six months have soured. Those expecting business conditions to deteriorate increased to 9.2 percent from 7.1 percent. Those anticipating an improvement in the months ahead fell to 20.9 percent from 23.7 percent.

The employment outlook also slid in July. The percentage of consumers expecting fewer jobs to become available in the next six months increased to 17.1 from 14.3. Consumers expecting more jobs to become available declined to 17.3 percent from 20.4 percent. About 19.5 percent of consumers expect their income to rise over the next six months, down from 20.9 percent last month.

Queried about present circumstances, those rating current conditions as "bad" climbed to 22.1 percent from 19.5 percent. Those rating current business conditions as "good," however, increased slightly to 20.1 percent from 19.9 percent. Consumers reporting jobs were "hard to get" rose to 24 percent from 23.2 percent. Those claiming jobs were plentiful fell to 18.8 percent from 20.1 percent.

In Washington, Republican and Democratic lawmakers and top administration officials joined Bush for the signing of the new business practices bill, but corporate executives were conspicuously absent.

The corporate scandals are one of several issues that many experts say could threaten the economy from making a full recovery and that, in turn, has taken a toll on Bush’s popularity.

Bush is hoping the bill will lift the economy and restore battered consumer confidence.

The measure tightens regulation of companies’ financial reporting and provides new oversight of independent auditors.

"Under this law, CEOs and chief financial officers must personally vouch for the truth and fairness of their companies’ disclosures," Bush said. "Every corporate official who has chosen to commit a crime can expect to face the consequences. No more easy money for corporate criminals, just hard time."

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