By and  on November 29, 2006

The Grinch is circling.

With the news Tuesday that consumer confidence fell unexpectedly in November, observers are growing more nervous about the outlook for the holiday season. Softening confidence, coupled with the decline in house prices and plunging durable goods orders, could mean consumers might be inclined to play the waiting game to see how low prices go before they rush out and do the rest of their holiday shopping.

The fears again hit shares of apparel retailers, which took another dip in trading on Tuesday following a 1.2 percent drop in the S&P Retail Index on Monday.

Outfitters fell $1.75, or 3.63 percent, closing at $46.40, and Abercombie & Fitch saw a 28 cent decline, closing at $68.52. Overall, the S&P Retail Index closed down $2.91 to $494.24.

Causing equal concern among analysts is retailers' post-holiday hangover. The depth of Black Friday price cutting at a few specialty chains, particularly those targeting teens, has raised questions about the health of gross margins for the still-important fourth quarter. And even those shopping the outlets this past weekend might have had an easier time than in prior years: There were parking spots available at midday at one popular outlet center.

To be sure, it seems consumers have yet to catch the proverbial cold. While they are becoming more cautious, in general they are still more optimistic now than they were in the summer when gasoline prices cut into discretionary spending.

According to The Conference Board on Tuesday, the Consumer Confidence Index, which declined in October, fell again this month to 102.9 from 105.1 in October, in part due to a tighter labor market. The consensus among economists was an expected increase to 106. The index reflected declines in its two components: the Present Situation Index, down to 123.6 from 125.1, and the Expectations Index, which fell to 89.2 from 91.9 last month.

"The Expectations Index, which correlates more closely with the rate of growth in consumer spending than the present situation or overall indices, now looks consistent with a trend in real consumption growth of around 3 percent at an annual rate," wrote Maury Harris, economist at UBS, in a research note Tuesday.

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