Consumer confidence falls more than analysts expected

NEW YORK -- Dragged down by a still-sluggish job market, consumer confidence in the economy dropped more sharply than expected in September.

The sour report and a disappointing reading on business activity in the Midwest helped send stocks lower on Wall Street. The Dow Jones industrial average was down nearly 70 points in afternoon trading.

The Consumer Confidence Index fell to 76.8, down nearly five points from the revised 81.7 registered in August, the Conference Board reported Tuesday.

The decrease was steeper than expected -- analysts were looking for a reading of 80.5. It was the biggest decline since July, when consumer sentiment fell 6.5 points to 77. The index had bounced back in August.

"The lack of improvement in labor market conditions continues to dampen consumers' spirits," said Lynn Franco, director of the board's consumer research center. "Despite September's retreat, consumers remain cautiously optimistic about the outlook for the next six months. Consumer spending is likely to continue at or near current levels."

Economists closely track consumer confidence because consumer spending accounts for two-thirds of U.S. economic activity.

"We have enjoyed a period of optimism over the summer," said Gary Thayer, chief economist at A.G. Edwards & Sons Inc., referring to the tax cuts, victory in Iraq and gains in the stock market. "But now we are seeing a more sober view of things, primarily because of jobs."

The nation's unemployment rate dipped to 6.1 percent in August, but businesses cut 93,000 jobs, the seventh month in a row of job losses. Robust productivity gains, meanwhile, have allowed companies to produce more with fewer workers.

Still, consumer spending has continued to grow moderately, increasing by 0.8 percent last month on top of a 0.9 percent advance in July. Larger paychecks and other incentives from President Bush's third tax cut has helped prop up spending.

Consumers anticipating that business conditions will improve over the next six months slipped to 21.4 percent from 22.6 percent in August. Those anticipating business conditions to deteriorate rose to 11.9 percent from 10.6 percent.

Those anticipating the job market to improve in the next six months decreased to 16.7 percent from 18.0 percent. Those expecting fewer jobs to become available increased to 21.0 percent from 18.6 percent.

Meanwhile, the Purchasing Management Association of Chicago said that its index of area business activity fell to 51.2 in September on a seasonally adjusted basis from 58.9 in August. Economists were anticipating a much smaller decline to 57.0.

Still, a reading above 50 indicates that business is expanding and September marked the fifth straight month that the Midwestern business barometer indicated growth.

On Wall Street, stock prices declined Tuesday following the consumer confidence news, with the Dow falling 105 points.