Macroeconomic woes such as a slumping housing market and high gasoline prices, along with higher home energy costs looming on the horizon, are taking a toll on consumers.
The Conference Board said Tuesday that the Consumer Confidence Index, declining since August, fell this month to 95.6 from a revised 99.5 in last month. October's reading is the lowest in two years.
On Wall Street, investors were soured by the sagging consumer confidence report as well as an S&P report that showed ongoing, weak housing prices. Investors also were cautious ahead of the Federal Reserve's decision today to keep interest rates where they are or to make a cut.
Interest futures on Tuesday were betting on another rate cut from the Fed, possibly another 25 basis points, bringing the rate down to 4.5 percent.
The Conference Board said the Present Situation Index portion of the Consumer Confidence Index decreased to 118.8 from 121.2 last month, while the Expectations Index fell to 80.1 from 85 in September.
"Further weakening in business conditions has, yet again, tempered consumers' assessment of current-day conditions and may very well be a prelude to lackluster job growth in the months ahead. In addition, consumers are growing more pessimistic about the short-term future, and their rather bleak outlook suggests a less-than-stellar ending to this year," said Lynn Franco, director of The Conference Board Consumer Research Center, in a statement.
Maury Harris, an economist at UBS, said in a research note that this month's Consumer Confidence Index reading "fell more than expected in October." Looking ahead, he concluded that the Expectations Index pointed to a slowing of consumer spending. "At 80.1, the Expectations Index appears consistent with about a 2 percent trend in real consumer spending growth, a sharp slowing from the estimated 3.2 percent annualized pace [for the third quarter]," he said.
Harris added that rising gasoline prices are likely to weigh more on confidence in coming weeks, noting that, according to the Energy Department's weekly gasoline survey, "average retail (all-grades) gasoline prices were up $0.05 to $2.92 a gallon on Oct. 29, after a $0.06 gain to $2.87 a gallon on Oct. 22. For comparison, retail gasoline prices averaged $2.85 a gallon in August and September."On the Mercantile Exchange, the price of crude oil fell to $92.22 a barrel, retreating $1.31 after hitting a high on Monday above $93 a barrel. The fall in crude oil helped boost the falling dollar somewhat, which rose slightly by 0.2 percent to $1.4403 against the euro mid-day Tuesday, although the dollar is still near its recent low of $1.4438.
Meanwhile, the key to this month's Consumer Confidence report seemed to focus on the respondents' less-than-optimistic outlook for the jobs front. The category of those who said they expected more jobs in the months ahead was essentially flat at 13.5 percent from last month, while those who anticipated fewer jobs rose to 20.1 percent from 18.7 percent.
House prices according to the Standard & Poor's/Case-Shiller Index in August dropped for the eighth consecutive month, falling 0.7 percent month-over-month to a weaker-than-expected decline of 4.4 percent year-over-year — the worst reading since 1991.
Merrill Lynch economist David Rosenberg said that home prices "declined more than expected" in August. "Going forward, we expect the substantial housing inventory overhang to continue to weigh on prices," Rosenberg wrote in a research note, adding that consumer confidence likely is weighed down by the housing recession and record-high crude oil prices.
Investors, after the economic data points were disclosed, weighed in by sending the Dow Jones Industrial Average down 0.6 percent to close at 13,792.47 in trading Tuesday. The S&P Retail Index followed suit, shedding 0.3 percent to close at 461.30.
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