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Wary shoppers still spending
By Times wires and staff report WASHINGTON -- Consumer confidence in the American economy sank to a nine-month low in August, the third straight monthly decline. Yet in July, demand surged for big-ticket goods such as cars and computers. The latest batch of economic news on Tuesday offered mixed signals to the economy's direction and suggested that while consumers may be growing more nervous, business might be feeling a little better, analysts said. Still, it is the actions of consumers and businesses -- their willingness or reluctance to spend and invest in the months ahead -- that will shape the recovery. Optimists are betting that consumers will keep their pocketbooks and wallets open and that businesses will slowly step up investment. Pessimists worry that they won't. "It seems the economy is at an inflection point, a turning point, where it either picks up momentum from the second quarter or loses momentum," said Lynn Reaser, chief economist for Banc of America Capital Management. The Conference Board, a private research group, reported that its Consumer Confidence Index fell to 93.5 in August, the lowest level since November, from a revised 97.4 in July. The showing, much weaker than the 97 reading analysts forecast, raised new questions about consumers' appetite for spending in coming weeks. Confidence was down in Florida, too. The Florida Consumer Confidence Index fell 3 points this month on a sharp downturn in the way people view their personal finances. University of Florida economists who compile the survey warned that could be bad news for retailers in the holiday season ahead. "When people are suddenly saying their own finances are worsening, it is pretty concrete evidence that their spending power is declining," said Chris McCarty, who directs the survey. The drop in confidence about personal finances was most severe in households with incomes of more than $30,000. The overall index was at 87, its lowest level since last October. The index measuring how people view their personal finances compared to a year ago was at 75, its lowest level since November 1993. An index of 100 represents the level of consumer confidence in 1966. "For the economy to start accelerating sharply, consumer confidence will have to start improving," said economist Joel Naroff of Naroff Economic Advisors. Economists check the index to gauge the behavior of consumers, whose spending accounts for two-thirds of economic activity in the United States. But Federal Reserve chairman Alan Greenspan has said that using confidence measures to predict consumer spending patterns is risky. Confidence fell in June and July, but retail sales posted solid gains in those months as free-financing offers, especially on cars, discounting and other incentives motivated buyers. Home sales in July also were strong, helped by low mortgage rates. Merrill Lynch economist Gerald Cohen said while back-to-school sales have been sluggish, that should be more than offset by robust auto sales for August. On Wall Street, the drop in confidence chilled investors, sending the market sharply lower and more than wiping out Monday's gains. Technology suffered the worst of the selling, after bearish comments from Intel's chief executive. The Dow Jones Industrial Average closed down 94.60, or 1.1 percent, at 8,824.41, after rising 46.05 Monday. The Dow is still up more than 1,100 from its July 23 closing low of 7,702.34. The market's broader gauges also retreated. The Nasdaq composite index fell 43.96, or 3.2 percent, to 1,347.78, having gained 11.12 in the previous session. The Standard & Poor's 500 index declined 13.13, or 1.4 percent, to 934.82 after a gain of 7.09. Intel fell 95 cents to $17.18 following bearish remarks Tuesday by CEO Craig Barrett. According to published reports, Barrett said he expects modest growth in third-quarter earnings but said capital spending in the computing sector continues to lag. In a second report Tuesday, orders to U.S. factories for costly manufactured durable goods jumped by 8.7 percent in July, the largest gain since October, suggesting that businesses felt more optimistic about the appetite for their products. The advance came after a 4.5 percent drop in June. July's performance was far stronger than analysts had predicted. Their forecast gains ranged from 1.4 percent to 2.7 percent. Economists viewed the report as a hopeful sign that seeds are being sown for a turnaround in capital investment by the nation's businesses. -- Times staff writer Helen Huntley contributed to this report, which used information from the Associated Press.
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From the Times Business report Robert Trigaux
From the AP
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