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Thu, Jul 31, 2003 - Page 12 News List

Summer shock for US economy

UNEXPECTED DEVELOPMENT The increasing optimism among many economic analysts for a recovery in the second-half of the year was dealt a severe blow Tuesday


US consumer confidence, sapped by lengthening jobless queues, plummeted unexpectedly this month, a closely watched survey by the Conference Board showed Tuesday.

The survey-based consumer confidence index slumped 6.9 points from last month to a four-month low of 76.6 points this month, defying Wall Street analysts' forecasts of an improvement, the private research firm said.

"This morning's drop in consumer confidence was a cold slap in the face to all of those economists, including ourselves, that are looking for a second half rebound," said Wachovia Corp economist Mark Vitner.

Shares, which had been higher, turned tail when the figures were released. The Dow Jones Industrials Average of 30 top stocks fell 62.05 points or 0.67 percent to 9,204.46.

"The rising level of unemployment and sentiment that a turnaround in labor market conditions is not around the corner have contributed to deflating consumers' spirits this month," said the Conference Board survey chief, Lynn Franco. "Expectations are likely to remain weak until the job market becomes more favorable."

The US unemployment rate shot up unexpectedly to a nine-year high of 6.4 percent last month as businesses axed 30,000 jobs.

But consumer confidence -- critical because it can sway consumer spending, which accounts for two-thirds of US economic activity -- had been expected to hold firm.

Hopes for economic recovery have been boosted by figures for last month showing retail sales rose 0.5 percent, groundbreaking on new homes surged 3.7 percent, and industrial production rose 0.4 percent.

And only on Thursday, the Labor Department said first-time jobless benefit claimant numbers tumbled below 400,000 in the previous week for the first time in nearly six months.

"Wall Street's expectations of consumer confidence month after month are based on economic data. The only things consumers look at are jobs and their wallets, both of which are getting thinner," said John Challenger, chief executive of outplacement firm Challenger, Gray and Christmas.

"While it is too early to say the sky is falling, the job loss picture may worsen in the not too distant future," he warned.

"There is a silver lining, however. The drop in confidence may not impact consumer spending -- which has almost singlehandedly kept the economy afloat for the last two years," Challenger said, pointing to tax rebates as a likely boon to shoppers.

The Conference Board barometer is made up of two key components: the expectations index, which fell to 86.4 this month from 96.4 last month, and the present situation index, which fell to 61.9 from 64.2.

The Conference Board poll conflicted with a rival survey by the University of Michigan, which found a slight improvement in consumer confidence in early July. The Michigan survey, however, places less emphasis on people's feelings about jobs.

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