- NEW YORK (Reuters)
- Stock market carnage and job anxiety soured American consumers' confidence
in July, while chain store sales slipped during the latest week, reports
said on Tuesday, raising concerns that consumer spending may cool and threaten
the recovery.
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- "With consumers concerned about both their stock
portfolios and employment prospects, spending will likely rise a little
less rapidly," said Mark Vitner, senior economist at Wachovia Securities
in Charlotte, North Carolina.
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- The Conference Board, a private research group, said
its closely watched index of consumer attitudes fell nine points to 97.1
in July from 106.3 in June. That was its biggest fall since October, the
lowest level since February, and was far below analysts' expectations for
a drop to 101.9.
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- But analysts cautioned against an overreaction to the
sudden plunge, saying it is common for confidence to falter in the early
stages of a recovery. They also echoed recent testimony to Congress by
Federal Reserve Chairman Alan Greenspan, who said that in any case, what
matters is what consumers do, not what they say.
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- U.S. stock markets sold off sharply through July, sending
the Standard & Poor's 500 index about 50 percent off its peak, weighing
heavily on Americans' stock portfolios. But the Conference Board said its
survey covered the period through July 22, before stocks saw their most
explosive rally since the days after the October 1987 crash.
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- Still, the data signaled that even as the economy is
recovering from last year's slump, Americans are having difficulty finding
jobs -- the single most important factor governing confidence.
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- In a press conference emphasizing the economy's strengths,
White House spokesman Ari Fleischer called the fall in confidence "worrisome."
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- Indeed, in the absence of major growth in business expenditures,
consumer spending -- which makes up two-thirds of the economy -- has been
a mainstay of the economy through the brief recession in 2001 and in the
still-halting recovery.
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- Confidence is still well above a 7-1/2-year low hit last
November and is far off lows seen during the 1990-91 recession, the report
had cautionary words: "While the current reading is not alarming by
historical standards, a continued slide could very well jeopardize the
economic recovery."
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- Stocks extended earlier losses after the report was released
but pared their losses in late afternoon trading. Interest-rate sensitive
U.S. Treasury securities rose, responding in part to the renewed equity
weakness but fell by late in the session.
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- JOBS HARDER TO GET
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- Consumers' assessment of the labor market and the availability
of jobs deteriorated further after hitting their most pessimistic level
since 1996 in June. The percentage of consumers who said fewer jobs will
be available over the next six months rose to 17.1 percent in July from
14.3 percent.
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- Consumers saying jobs were "hard to get" rose
to 24.0 percent in July, up from 23.2 percent, its highest level since
1996. This component of the survey is highly correlated with the unemployment
rate, currently at 5.9 percent, and economists said that signaled joblessness
could rise further.
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- The government will report on payrolls and unemployment
for July on Friday. Economists polled by Reuters last week forecast 69,000
new jobs were created during the month and that the jobless rate probably
remained unchanged.
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- Hinting at a potential pullback in spending, the Present
Situation Index, which measures Americans' views of the economy right now
and their own finances, fell to 99.2 in July from 104.9 in June. The Consumer
Expectations Index, a gauge of the six-month outlook, fell to 95.7 in July
from 107.2.
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- "The continued decline in the Present Situation
Index suggests that consumers would tend to curb their spending in the
absence of offsetting initiatives," said Lynn Franco, director of
the Conference Board's Consumer Research Center.
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- One such initiative is big price discounting. Zero interest
rate financing offered by automakers this month is expected to generate
a robust tally of car sales, perhaps as high as the months following the
Sept. 11 attacks when similar offers abounded and confidence was also in
the dumps.
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- The confidence data coincided with a joint report from
the Bank of Tokyo-Mitsubishi and UBS Warburg that said sales at the nation's
chain stores slipped 0.4 percent in the week ending July 27, reversing
last week gain. A separate report from Instinet Research showed a 0.4 percent
drop in sales during the first three retail weeks of July.
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- Anecdotal reports this week from discount retailers have
supported the view that sales have slowed. Wal-Mart Stores, the nation's
biggest retailer, said on Monday this month's sales would be at the lower
end of expectations.
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- http://www.reuters.com/news_article.jhtml?type=businessnews&StoryID=1270797
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