NEW YORK — Consumer confidence in December dropped for the third straight month, hitting its lowest level in two years, a research group reported Thursday, suggesting that the chill will continue into the new year.
Yet, economists said they expect to see a turnaround in the second half of 2001.
The Conference Board’s Consumer Confidence Index fell below analysts’ expectations to 128.3, from November’s 132.6, and 14.2 points below September. This year’s high of 144.7 was reached in January and May.
“This latest decline in consumer confidence suggests that consumer spending will cool further as we enter 2001,” Lynn Franco, director of The Conference Board’s Consumer Research Center, said. “While the overall index continues to signal economic growth, albeit at a slower pace, the continued decline in expectations is somewhat disconcerting.
“If expectations continue on this downward trend, a more severe economic slowdown may be on the horizon.”
Consumer confidence has fallen sharply since the index recorded 142.5 in September. The last time the index fell below 128.3 was in December 1998 during the international financial crisis, when it measured 126.7, said John Lonski, an economist with Moody’s Investors Services.
In another sign the economy is in a slowdown, the Conference Board reported Wednesday that the Composite Index of Leading Economic Indicators declined 0.2 percent in November, following a 0.3 percent drop in October.
The board’s economist Ken Goldstein said: “The indicators are pointing to significantly slower growth in the first half of 2001. More recently, both businesses and consumers have become somewhat more cautious.”
Still economists said the report is not weak enough to suggest that the U.S. economy is in danger of slipping into a recession. And they said that they expect a turnaround to hit in the middle of next year, with the help of the Federal Reserve Bank, which economists hope will reverse this year’s trend by cutting interest rates.
The biggest decline in the report came from consumer expectations for the next six months. The Expectations Index, one-half of the overall index, which measures consumer sentiment on the short-term future, fell from 101.2 in November to 95.8 in December, its lowest reading since October 1998.
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While the percentage of respondents expecting an improvement in business conditions rose to 16.7 percent from 14.7 percent, those anticipating worse conditions also rose, to 10.2 percent from 8.3 percent. The employment outlook was also less optimistic. Currently, 13.7 percent of consumers expect more jobs to become available, down from 14.7 percent in November. Those expecting reduced job availability in the coming months increased to 15.9 percent from 13.6 percent.
As for income prospects, 27.1 percent of respondents anticipate a gain, down from 28.7 percent in November.
Lonski said consumers are most worried about the weak equity markets and the downward revision of corporate earnings, which affect employment prospects. He noted the index’s percentage of consumers who believe more jobs would become available — which averaged 17.1 percent this year — is at its lowest point for 2000.
“What is happening is consumers are suffering from loss of confidence,” Lonski said.
Richard Berner, chief U.S. economist with Morgan Stanley Dean Whitter, said, “This is another piece of information that says consumer confidence is slipping and for good fundamental reasons,” pointing to downside risk to economic growth in the coming months.
The decline in consumer assessment of current conditions was not as dramatic, as the Present Situation Index fell to 177 from 179.7 in November. In particular, the percentage of consumers who rated current business conditions as “good” declined from 43.1 percent last month to 41 percent in December. Consumers rating conditions as “bad” rose from 8.8 percent to 9.5 percent. Consumers claiming jobs were “hard to get” increased to 11.9 percent from 11.1 percent.
Lonski warned retailers that for the next six months, he expects consumers to be more cautious and a little bit tighter with their wallets. “Unless there is a turnaround in the stock market and corporate earnings, it would be mostly unlikely to see consumer spending recover significantly from the current slowdown from the year-over-year increases in retail sales and consumer spending [that occurred] in late 1999 into early 2000.”
To combat this, he said retailers “must be patient and must work harder to get consumers to spend and provide consumers with something which allows them to lessen their guard.”
He said that right now personal income is growing more rapidly than retail sales, a change in sentiment from when consumers where racking up credit debt.
The Consumer Confidence Index also showed a slight increase in consumers’ appetite for new cars and new major appliances, though those with plans to purchase a new home and take a vacation fell in December.
On a more positive note, the National Association of Realtors reported Thursday that sales of previously occupied homes rose by 4.4 percent last month to 5.22 million from 5 million in October, spurred on by cheaper mortgage rates.
The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. The index compares results to its base year, 1985, when it stood at 100.