US consumer confidence fell this month by the most since the September 2001 terrorist attacks because of worries about incomes, jobs and war with Iraq.
The Conference Board's consumer confidence index plunged to a nine-year low of 64 from 78.8 last month. Except for a 17-point drop the month of the attacks, this month's 14.8-point decline was the largest since April 1980, when a US mission to rescue American hostages in Iran failed.
The "confidence readings paint a gloomy picture," said Lynn Franco, director of the Conference Board's consumer research center. "Lackluster job and financial markets, rising fuel costs and the increasing threat of war and terrorism appear to have taken a toll."
With three straight months of waning optimism and household incomes pinched by the highest gasoline prices since June 2001, companies are using discounts to attract customers.
A sustained decline in confidence threatens to weaken consumer spending.
Same-store sales in the first 25 days of this month, typically one of the weakest months of the year for retailers, fell 2.1 percent from a month earlier. While some of the decrease was due to a snowstorm that paralyzed parts of the Northeast US last week, sales had already been weakening in prior weeks, according to the Instinet Research Redbook report.
So far, people are confident about the housing market. Sales of previously owned homes rose last month to the highest on record, fueled by the lowest mortgage rates since the 1960s. Home resales increased to an annual pace of 6.09 million, the National Association of Realtors said.
Economists had expected the consumer sentiment index to fall to 77 this month, based on the median of 62 forecasts in a Bloomberg News survey. The lowest estimate was 74. The Conference Board surveys 5,000 households about general economic conditions, their employment prospects and their spending plans. Research has shown confidence levels correlate more closely with current spending than with future spending.
Still, a 1998 Federal Reserve Bank of New York study found "questions that ask about consumers' perceptions of job availability typically have the most explanatory power for future movements in consumption."
Americans were less upbeat this month about their present situation and the future. The percentage of consumers who expect their incomes to increase six months from now fell to the lowest since the Conference Board began keeping records in 1967.
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