By  on September 28, 2005

NEW YORK — A 18.9 point plunge Tuesday in consumer confidence for September marked the lowest level of the indicator since October 2003, as well as the largest point decline in 15 years, thanks to rising fuel prices stemming from the devastation from Hurricane Katrina.

The Conference Board's Consumer Confidence Index, for the four weeks ended Sept. 20, dropped to 86.6 for the month from 105.5 in August. Economists had expected the index to decline to around a reading of 95.

Both components of the Index in September fell, with the Present Situation Index declining to 108.9 from 123.8 and the Expectations Index decreasing to 71.7 from 93.3 last month.

Economist Maury Harris at UBS said in a report Tuesday that the "sizeable plunge in confidence would ordinarily be viewed as recession-like, although in this case the drop is widely expected to be reversed as gasoline prices stop soaring and the shock of Katrina subsides."

Harris said a rebound in confidence likely would stem from the "resilience in the labor market." He noted that jobless claims so far have stayed low, when excluding direct hurricane effects, suggesting that the "deterioration in the employment parts of the Conference Board survey was an overreaction in the wake of Hurricane Katrina and the surge in gasoline prices."

In a research note on Sept. 16, which explained the plunge in the University of Michigan consumer sentiment index to 76.9 from 89.1 in August, Harris stated: "One of the key lessons of the past two years has been that jobless claims are usually a more reliable gauge of the underlying trend in growth than the consumer data."

The employment picture in the Conference Board's survey for September certainly was far from rosy. Consumers who believed jobs are "hard to get" rose to 25.4 percent from 23.1 percent, while those claiming jobs are "plentiful" fell to 20.1 percent from 23.6 percent. Those expecting more jobs to become available in the coming six months decreased to 14 percent from 16.4 percent, while those expecting fewer jobs increased to 25 percent from 17.3 percent, the Board said.

"Historically, shocks have had a short-term impact on consumer confidence, especially on consumers' expectations. Fuel prices remain high, though they have retreated in recent days, and when combined with a weaker job market outlook, will likely curb both confidence and spending for the short-run. As rebuilding efforts take hold and job growth gains momentum, consumers' confidence should rebound and return to more positive levels by yearend or early 2006," said Lynn Franco, director of the Conference Board's Consumer Research Center, in a statement.Despite the economic side effects of Hurricanes Katrina and Rita, global consulting and market research firm Retail Forward said Tuesday that it expects the "2005 holiday season to be a healthy one for the key retail sectors, though growth is expected to be off last year's solid performance."

The research firm expects general merchandise stores to experience 5 percent sales growth this holiday. While a bit lower than the 5.4 percent gain last year, the firm said it's "on par with the average holiday growth rate since 1990." When including home improvement, catalogue and online retailers, fourth-quarter sales growth is expected to reach 5.5 percent versus 7.3 percent in 2004. Those percentages are still higher than the 3 percent gains in 2001 and 2002, according to data from Retail Forward.

By merchandise category, however, growth at the department store channel is forecast to be nearly flat, as demand produced by job and income growth is tempered by price deflation in apparel and home goods, Retail Forward said. High-end players are expected to continue to perform well this holiday season while specialty apparel and footwear stores could see stronger discounting and fewer compelling fashion trends. Supercenters and warehouse clubs could be the winners this year as value-oriented consumers look to get more for their money.

Retail Forward also forecast a 25.6 percent spike in growth for online retail sales for the fourth quarter, bringing the total volume expected to $27 billion from $21.5 billion in the 2004 holiday season. The National Retail Federation said last week that it expected total holiday retail sales to increase 5 percent over last year, bringing holiday spending to $435.3 billion. That compares with a holiday sales gain of 6.7 percent in 2004 to $414.7 billion.

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