Consumer confidence posts unexpectedly sharp drop

NEW YORK -- With Americans worried by a rise in unemployment to a nine-year high, consumer confidence took an unexpected tumble in July that could mean a longer road to recovery for the U.S. economy.

The Consumer Confidence Index fell to 76.6 in July, nearly a seven-point drop from 83.5 in June. Analysts had expected a 1.5-point increase.

The decline was the largest since February, when confidence dropped 14 points to 64.8 as war with Iraq loomed. Confidence surged in April as the fighting tapered off, but it held steady in May and June.

"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 Lynn Franco of the Conference Board, the industry group that produces the index. "Expectations are likely to remain weak until the job market becomes more favorable."

The news roiled stock markets. The Dow Jones average closed down 62 points to 9,204 after being down as much as 98 points. The Nasdaq fell 4 points to 1,731. The Standard & Poor's 500 index slipped 7 points to 989.

Economists and investors watch consumer confidence closely because consumer spending makes up for two-thirds of all economic activity in the United States and has been key to keeping the struggling economy afloat.

Recently there had been some signs of a recovery. Last week, the Commerce Department reported the biggest increase in demand for big-ticket products since January and a better-than-expected gain in retail sales. And new home sales increased to the highest level on record.

Still, the sluggish job market has been a drag on the economy. The nation's unemployment rate hit a nine-year high of 6.4 percent in June.

Economists were surprised by the confidence figures but said they do not believe consumers will reduce spending unless more bad news follows.

"This doesn't mean a sudden decline in consumer spending," said Oscar Gonzales, economist at John Hancock Financial Services.

Mark Vitner, senior economist at Wachovia, noted the survey showed that more people plan to buy automobiles, homes and major appliances.

The survey found those rating present business conditions as "bad" increased to 30 percent from 28 percent. However, those holding the opposite view increased to 16 percent from 15 percent.

On the Net

Conference Board: www.conference-board.org/economics/consumer.cfm