Byline: Jennifer Weitzman

NEW YORK — Fears about the economy and the Federal Reserve’s ability to control it sent the Consumer Confidence Index down 9 points in February to 106.8, its lowest level in four years.
Declining for the fifth straight month since rising to 142.5 in September, the Index hit its lowest level since January 1996, when it registered 100.1.
Lynn Franco, director of The Conference Board’s Consumer Research Center said, “The erosion in consumer confidence continues to be fueled by weakening expectations regarding business and employment conditions.”
Still, she added, “While the short-term outlook continues to signal a severe economic downturn, consumers’ appraisal of current economic conditions suggests we are still undergoing moderate growth and not a recession.”
The biggest decline in the monthly report came in its reading of consumer expectations for the next six months. The Expectations Index — a measure of consumer sentiment for the short term, which constitutes one-half of the overall index — fell to 68.7 in February from 79.3 in January. The February measure is the lowest since October 1993, when it hit 66.7
The percentage of consumers expecting a pickup in business conditions declined to 11.1 percent from 13.1 percent. Those anticipating conditions to worsen rose to 17.8 percent from 15.2 percent.
The employment outlook was also bleak as the number of American consumers expecting more jobs to become available fell to 10.2 percent from 11.7 percent last month. Those expecting fewer jobs to become available increased to 27.2 percent from 21.5 percent while 22.1 percent expect their incomes to rise, down from 24.1 percent in January.
The Present Situations Index, which measures current consumer sentiment and represents the other half of the overall index, decreased, but less dramatically — down to 164.1 in February from 170.4 in January. The percentage of consumers who rated current business conditions as “good” declined to 30.7 percent from 34.5 percent. Consumers rating conditions as “bad” increased to 11.4 percent from 10.7 percent. Those claiming jobs were “hard to get” moved up to 12.9 percent from 12.8 percent. Those reporting jobs were plentiful declined to 42.4 percent from 49 percent.
Moody’s Investors Services’ John Lonski said the report is troubling, especially in that it suggests a worsening of conditions six to 12 months down the road as more consumers begin to believe there will be a combination of a decline in business activity and rising prices.
He said while February’s index of 106.8 is 47 percent higher than the 72.6 point average during the 1990-91 recession, this month’s expectations component of 68.7 is under the average of 70.5 during the last recession. And, this month’s expectations index is 38.1 percent below the overall index, the widest such gap ever.
“Consumers, who had become accustomed to low inflation, are very jittery about the future,” Lonski said, adding that the fear of a combination of a slower economy, fewer job opportunities and higher price growth is fueling consumers’ fears.
Bill Sharp, a senior U.S. economist with J.P. Morgan Chase, said the expectations index has been falling faster than the present situation index since October. In fact, he said the index is down 47.2 over the past five months, a figure consistent with periods of a recession.
He noted the combination of the memory of the uncertain presidential election, a weakening economy and then, perhaps ironically, recent drops in interest rates fed into the continued drop in expectations and fear of recession.
But for Diane Swonk, chief economist with Bank One Corp., Tuesday’s index news wasn’t particularly alarming. “Actions speak louder than words,” she said, “and consumers are still spending.” She noted that although their spending pace has slowed, it remains within the guidelines of economic expansion.
She pointed to last month’s rebound in retail sales and February’s strong start — as well as new home sales surging in January — as indications that consumers’ pocketbooks are still loaded and open to suggestion.
“The world is hardly falling apart,” Swonk said. “Consumers may say they feel bad, but they have money to burn and spending has reaccelerated a bit in the first quarter.”
In addition, Swonk said in another six months, consumers may have more money thanks to lower utility and energy bills, and possibly expectations of lower taxes.
The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The index compares results to its base year of 1985, when it stood at 100.
According to the Consumer Confidence Index, the percentage of consumers expecting to buy a new car or home in the next six months increased to 8.4 from 7.8 and to 3.8 from 3.3, respectively, last month. However those expecting to buy new appliances or intending to take a vacation fell, to 27.4 from 28.1, and to 41.6 from 48.6, respectively. Lonski said he expects to see another half of a percent interest rate cut by the end of March, on top of the two in February. However, rate cuts may become less frequent if higher inflation does reemerge.

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