Image: Depression sale
David Zalubowski  /  AP
Shoppers pass by a sign for a depression sale at a shop in Old Town in Albuquerque, N.M.
updated 9/30/2008 12:46:18 PM ET 2008-09-30T16:46:18

Americans’ confidence in the economy unexpectedly improved in September, but it still hovers near a 16-year low as they wrestle with a weak job market, higher food and fuel prices, and the worst financial crisis in decades.

The Conference Board said Tuesday that its Consumer Confidence Index is now at 59.8, up from a revised 58.5 in August. Economists surveyed by Thomson/IFR expected a reading of 55.5.

The survey, which is based on a sample of 5,000 U.S. households, aims at measuring how much faith people have in the job market and in the economy now and over the next six months. Consumer spending represents about two-thirds of all economic activity.

September’s confidence level is about half of what it was a year ago and near the lowest since the index registered 54.6 in October 1992 when the economy was coming out of a recession.

The cutoff date for responses to the survey was September 23 and doesn’t capture Monday’s stock market plunge that wiped away $1.2 trillion in value from retirement funds, mutual funds and individual stock holdings.

The Present Situation Index, which measures shoppers’ current assessment of the economy, decreased to 58.8 from 65.0 in September. The Expectations Index, which measures consumers’ outlook for the next six months, however, increased to 60.5 from 54.1 in August.

“September’s increase in the Consumer Confidence Index was due solely to an improvement in the short-term outlook,” said Lynn Franco, director of The Conference Board Consumer Research Center, in a statement. “However, these results did not capture all of the tumultuous events in the financial sector this month, and until the dust settles a bit more, we will not know the full impact on consumers’ expectations.”

Franco added that shocks such as the 1987 stock market crash “generally tend to have a temporary adverse effect on confidence, lasting on average two to four months unless they result in significant job losses.”

“Just as noteworthy, consumers’ assessment of current conditions continues to indicate that the current economic environment remains quite weak,” she said.

Since mid-September, the nation has been rocked by disruptions in the financial markets that led to the downfall of Lehman Brothers, forced Merrill Lynch into the arms of Bank of America and pushed Washington Mutual, the nation’s largest thrift, to failure.

Stock markets have tumbled and credit markets, that supply the lending that keeps businesses going, have seized. On Monday, a $700 billion government plan to buy up toxic debt from banks and unclog lending, failed to pass in the House. The Dow industrials dropped 778 points.

Major Market Indices

On Tuesday, stocks staged a partial rebound, but credit markets remained locked tight and a key rate that banks charge to lend to one another shot higher. That lack of confidence in each other affects everything from car loans to the short-term debt companies take on to pay their workers.

If Congress doesn’t ultimately approve a bailout plan, analysts say the economy could fall into a deeper recession than already expected.

A closely watched index released Tuesday showed home prices in 20 cities from Boston to Phoenix to Miami fell by the sharpest annual rate ever in July. The Standard & Poor’s/Case-Shiller 20-city housing index also showed the rate of monthly declines is slowing, which may point to some renewed activity in real estate.

The housing crisis is one of the biggest problems the economy faces. As long as home prices keep falling, foreclosures will rise, budgets will be strained and financial companies still will take hits.

The nation’s retailers need consumers to be in the mood to spend as they head into the holiday season. The financial meltdown is expected to lead to more layoffs as the banking industry consolidates.

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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