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Consumer Confidence Suffers Surprise Fall
Tuesday July 29, 2:22 pm ET
By Wayne Cole


NEW YORK (Reuters) - U.S. consumer confidence took a surprise spill in July as worries over rising unemployment took a heavy toll, the Conference Board reported on Tuesday.
The result provided a muted counterpoint to cheerleading from government officials. Treasury Secretary John Snow on Tuesday took time off from a bus tour of the Midwest to tell television network CNBC the economy was "spring-loaded to go."

Not all Americans, it seems, are convinced. The private research group's monthly consumer confidence index slid to 76.6 in July from 83.5 in June.

That was the lowest reading since March, when the invasion of Iraq was in full swing, and completely confounded analysts, who had looked for an improvement to 85.0.

"It's a bit of a disappointment, like two steps forward and one step back," said Jim O'Sullivan, an economist at UBS. "People are obviously concerned about jobs."

The index that measures jobs hard-to-get rose to 33.1 percent from 31.9 percent in June, its highest level since 1994. That mirrored a jump in the national unemployment rate to 6.4 percent in June, also a nine-year peak.

Job figures for July are due on Friday, and this poor survey could dent hopes that payrolls will show the first rise in five months. The labor market has stayed stubbornly depressed, even though other recent indicators have shown some signs of life are stirring in the economy.

"It doesn't change the overall impression that the economy's getting better. Rather, it's a reminder that people shouldn't get too carried away with expectations for the scale of the recovery," added O'Sullivan.

The stock market put a brave face on the figures and recovered from an early slide to be about flat on the day.

[Go PPT! It's your birthday, go greenie, go PPT...!]

Meanwhile, Treasury investors proved just as fickle as consumers, first bidding bonds higher on the data only to sell off en masse as the day progressed. Yields have surged in recent weeks as optimism grew for a robust economic recovery.

LABOR LAST

The survey also suggested people were more worried about the future than the present. The Conference Board's expectations index slumped to 86.4 from 96.4, while the present situation index fell only modestly to 61.9 from 64.2.

"That's a big shift and doesn't sit well with expectations of a strong second half recovery," noted John Caldwell, chief investment strategist at McDonald Financial Group.

"But it looks like a reaction to the headlines on unemployment and it's worth remembering that labor is the last thing that companies spend money on," he added. "Capital spending comes first and signs are that's improving."

McDonald Financial, based in Cleveland, compiles its own survey of affluent Americans and the latest report, released just Monday, found 55 percent now looked for better growth this quarter up from 45 percent three months ago.

Earlier this month the University of Michigan's survey of consumers found a slight improvement in July, with its sentiment index rising to 90.3 from 89.7 in June.

But a weekly survey by ABC News/Money Magazine showed scant sign of a lightening in consumers' gloomy mood.

Analysts noted that in recent years, there has been little correlation between what consumers tell surveys and what they actually do with their money. Even the gloomiest responses have not stopped people buying cars and homes at a record pace.

Two reports on U.S. chain store sales, released earlier on Tuesday, showed some slackening in demand last week. But spending was still at its best pace since the Easter-assisted strength of April.


http://biz.yahoo.com/rb/030729/economy_consumers_4.html