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Consumers Remain Wary

NEW YORK — The year ended on a down note in the minds of consumers.<br><br>The Conference Board’s Consumer Confidence Index fell 4.6 points to 80.3 in December, down from a revised 84.9 in November, when the index rebounded...

NEW YORK — The year ended on a down note in the minds of consumers.

This story first appeared in the January 2, 2003 issue of WWD.  Subscribe Today.

The Conference Board’s Consumer Confidence Index fell 4.6 points to 80.3 in December, down from a revised 84.9 in November, when the index rebounded some.

Preceding November, the measure of consumer sentiment, which is based on a representative sample of 5,000 U.S. households, faltered for five consecutive months. Economists aren’t looking for a strengthening in consumer attitude until jobs become more readily available.

The Present Situation Index, which measures ongoing conditions and makes up half of the overall index, sank 8.4 points in December to 69.9. Gauging the outlook for the next six months, the Expectations Index, which makes up the other half of the overall measure, declined a more modest 2.1 points to 87.2.

“Latest signals from consumers are in keeping with a continuing mixed bag of economic news,” Lynn Franco, director of The Conference Board’s Consumer Research Center, said in a statement.

In spite of dropping consumer confidence, the equity markets managed to inch up in the final trading session of the year. The Dow Jones Industrial Average rose 8.78 points to 8,341.63. The Standard & Poor’s 500 stocks slid 0.43 points to end at 879.82, while the S&P Retail Index rose 0.01 points to 267.36.

Both the Dow and the S&P 500 topped off their third straight year of losses, the first time that has happened since 1939-41.

“The major factor dampening consumers’ spirits has been the rising unemployment rate and the discouraging job outlook,” Franco said. “Until there is an improvement in the labor market conditions, there is not likely to be a significant upturn in consumer confidence.”

The Department of Labor reported that, with 8.5 million people unemployed in November, the unemployment rate rose to 6 percent, a level last reached in April. From May through October, the jobless rate ranged from 5.6 to 5.9 percent.

Franco said, “What we’re really seeing is oftentimes what we see during a recovery.” That is a diminished view by consumers of their present situation and a view of the future that indicates growth, although slow growth, in this case.

“Jobs are really the primary source of income,” she added. “Nothing will make the consumer close their wallet more quickly than job insecurity.”

Franco said there hasn’t been a big shift in consumer mood and that played out through a “lackluster” holiday season, adding, “With such deep discounting already at hand, it’s put a squeeze on the profit margins of retailers.…We’ve been in these murky waters for three months now.”

Accessing their current situations, only 14.6 percent of the consumers taking part in the survey rated the current business conditions as “good,” down from 16.1 percent in November. Those holding the opposite view stood unchanged at 25.8 percent.

The number of consumers finding jobs “hard to get” rose to 29.8 percent of those surveyed, up from 27.3 percent in November. Those seeing a “plentiful” job market dipped to 12.4 percent from 14.2 percent.

Respondents looking for business conditions to improve over the next six months inched up to 20.8 percent from 20.3 percent. Those expecting conditions to worsen decreased to 11 percent from 11.3 percent.

The survey also found that consumers in December became less bullish on the job outlook and their own income expectations. Consumers anticipating fewer jobs in the coming months rose to 20.2 percent, up from 18.8 percent in November. Respondents expecting more jobs declined to 15.1 percent from 15.4 percent. Likewise, the survey found that 18.7 percent of consumers expect an increase in their incomes, down from 19.4 percent in November.

Kamalesh Rao, an economist with Moody’s Investors Service, said the reading of consumer sentiment was “indicative of a consumer that’s a lot more conservative because they’re really concerned with the job outlook. That’s going to put a dent in the part of the economy that’s driven by the consumer.”

However, the business outlook was more upbeat, suggesting firms will start spending and hiring more, he said.

Overall, Rao said the index’s drop was “discouraging,” but most likely doesn’t signal a recession in the long run.

“What has been a little frustrating to most people is that the expectations have been high and the economy hasn’t really picked up,” he said. “That’s been a real disappointment.”

J.P. Morgan Chase & Co. economist James Glassman said, “The drama in the economy is not going to come from the consumer this coming year, it’s going to come more from the business sector.”

The economist expects consumer spending in 2003 to rise by 2 to 3 percent, keeping pace with the growth rate of the last two years.

“For an economy that’s struggling out of a recession, it’s not a bad performance,” Glassman said. “The body language of the consumer is all very cautious and that makes people in the retail business very nervous.”

Caution among businesses is at an all-time high and this has held inventories, as related to sales, at record lows, he said.

“When people gain a little confidence, there’s room for the business sector to do a lot better, both in terms of their capital spending and inventory rebuilding, without a whole lot of prodding from the government,” he added.