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Sharp fall in consumer confidence spurs fears

Tuesday, February 23, 2010 - 5:10pm

NEW YORK (AP) — Americans' outlook on the economy went into relapse in February. Rising job worries sent a key barometer of confidence to its lowest point in 10 months, raising concerns about the economic recovery.

The Conference Board said Tuesday its Consumer Confidence Index fell almost 11 points to 46 in February, down from a revised 56.5 in January. Analysts were expecting only a slight decrease to 55. It was the lowest level since the index recorded a 40.8 reading in April 2009.

The increasing pessimism, which erased three months of improvement, is a big blow to hopes that consumer spending will power an economic recovery. Economists watch the confidence numbers closely because consumer spending accounts for about 70 percent of U.S. economic activity.

The February reading is a long way from what's considered healthy: A reading above 90 means the economy is on solid footing. Above 100 signals strong growth.

"It still feels like a recession," said Lynn Franco, director of The Conference Board Consumer Research Center.

The drop is likely to raise pressure on the Obama administration and Congress to move faster on job creation measures.

President Barack Obama said earlier this year that jobs would be his top priority. But legislation to stimulate hiring has yet to be approved. That delay and continued wrangling over health care reform might have contributed to the drop in confidence, some analysts said.

The Senate is expected to approve on Wednesday a modest $15 billion jobs bill that would give employers tax breaks if they hire new workers.

While economists said heavy snowstorms in many areas of the country that shut down businesses dampened confidence, many believe that the report confirms that consumers aren't feeling the nascent economic recovery.

"More than six months after the recovery started, consumer confidence is still close to a record low," said Paul Ashworth, senior U.S. economist at Capital Economics Ltd. "Without a sustained acceleration in consumption growth, this recovery will eventually fade."

The news sent stocks lower, overshadowing retailers' reports that showed stronger holiday profits but little improvement in sales. The Dow Jones industrial average fell 100.97 points to 10,282.41.

One gauge, measuring consumers' assessment of current conditions, dropped to 19.4 from 25.2, the lowest level since 1983. The other barometer, which measures their outlook over the next six months and had been rising since October 2009, fell to 63.8 from 77.3.

The Consumer Confidence Index hit a historic low of 25.3 in February 2009 but then enjoyed a three-month climb to 54.8 in May, fueled by signs the economy might be stabilizing. Since then, it has been mired in a narrow range, dropping as low as 47, as rising unemployment took a toll, before climbing again for a three-month stretch.

February's reading is well below the 61.4 figure in September 2008, when the financial crisis intensified with the collapse of Lehman Brothers. The index has had an average reading of 95.6 since the Conference Board starting tracking the figures in 1967.

"The combination of earnings and job anxieties is likely to continue to curb spending," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.

The downbeat report on confidence came amid encouraging news about the housing market. According to a key housing index, also released Tuesday, home prices rose for the seventh straight month in December, a sign of price stability as the U.S. housing market continues its bumpy recovery.

The Standard & Poor's/Case-Shiller 20-city home price index rose 0.3 percent from November to December, to a seasonally adjusted reading of 145.87. The index was off 3.1 percent from December last year, nearly matching analysts' estimates that it would fall by 3.2 percent.

But a solid job market is critical to consumers' boosting their spending and the overall of health of the economy.

The overall economy expanded at an annual rate of 5.7 percent in the fourth quarter, but only about one-fourth of that growth came from consumers. That marked the second quarterly increase in a row after four quarters of decreases.

Many economists expect new jobs to be created in coming months. Unemployment fell to 9.7 percent in January from 10 percent in December, and employers shed 20,000 jobs. But they still worry that joblessness will climb back up by next summer as unemployed people who abandoned job searches start trying again.

The results, based on a sample of 5,000 U.S. households with cutoff date was Feb. 17, showed consumers' assessment of current job opportunities and job prospects over the next six months eroded.

Traditionally, jobs don't improve until after a recovery in consumer spending and confidence. But Gary Thayer, chief economist at Wells Fargo Advisors, believes that this time around, big improvements in jobs, confidence and spending will be "marching together."

"I think shoppers are going to wait until things get better," he said.

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