Video: Shaky sentiment

updated 8/31/2004 11:32:36 AM ET 2004-08-31T15:32:36

Consumer confidence, which had been on the rise since April, declined unexpectedly sharply in August, a private research group said Tuesday.

The Consumer Confidence Index dropped 7.5 points to 98.2 from a revised reading of 105.7 in July, according to a report from The Conference Board. The reading was much lower than the 103.5 that analysts had expected, and was the lowest since May, when it registered 93.1.

“The slowdown in job growth has curbed consumers’ confidence,” said Lynn Franco, director of The Conference Board’s Consumer Research Center, in a statement. “The level of consumer optimism has fallen off and caution has returned. Until the job market and pace of hiring picks up, this cautious attitude will prevail.”

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

Major Market Indices

The worst-than expected report is unsettling, offering another fresh dose of evidence that the economy continues to be in a fragile state. On Monday, the Commerce Department reported that consumers spent more freely in July, raising hopes that June’s economic pause would only be temporary. But the government also announced that consumers’ incomes that month grew slower than analysts expected.

Wall Street is anxiously awaiting job figures from the Labor Department, due out on Friday, for any signs of improvement. Analysts are expecting the nation’s payrolls to add 150,000 jobs. In July, the economy only added a meager 32,000 jobs.

The Consumer Confidence report said the Present Situation index fell to 100.7, from 106.4, while the Expectations Index, which measures consumers’ outlook over the next six months, dropped to 96.6 from 105.3.

Consumers’ assessment of current conditions was less upbeat than last month. Those saying business conditions are “good” declined to 23.2 percent from 25.2 percent. Those claiming conditions are “bad” rose to 20.1 percent from 19.1 percent. Consumers saying jobs are “plentiful” decreased to 18.1 percent from 19.7 percent while those claiming jobs are “hard to get” rose to 25.8 percent from 25.7 percent in July.

Consumers have also reduced expectations for the next six months. Those anticipating conditions to worsen increased to 8.8 percent from 7.1 percent. Those expecting business conditions to improve declined to 20.1 percent from 23.0 percent last month.

The employment outlook for the next six months was also less favorable. Consumers expecting fewer jobs increased to 15.4 percent from 13.5 percent. Those anticipating more jobs to become available fell to 16.2 percent from 19.5 percent. Consumers expecting their incomes to improve in the months ahead rose to 19.3 percent from 18.0 percent last month.

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