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.S. Consumer Confidence Falls to 99.8 in September From 105.6
By Shobhana Chandra
Sept. 25 (Bloomberg) -- Consumer confidence in September fell more than forecast to the lowest level in almost two years, as falling home values, a deteriorating labor market and tougher borrowing standards took a toll on Americans' spirits.
The Conference Board's index of confidence plunged to 99.8, from a revised 105.6 in August and workers were less optimistic about job prospects, the New York-based group said today.
The report raises concern that the prolonged housing recession and tougher credit standards will put a brake on consumer spending, which accounts for more than two-thirds of the economy. The Federal Reserve cut interest rates by half a percentage point last week to forestall the risk of a broader economic slump.
``The risks to the economy have definitely escalated, and that'll affect consumers as well as businesses,'' Ellen Zentner, an economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. ``We've already worked lower consumer spending numbers into our forecast.''
The consumer confidence index was the lowest since November 2005. The reading was forecast to fall to 104.3, from an originally reported August reading of 105, according to the median estimate in a Bloomberg News survey of 71 economists. Projections ranged from 100 to 107.
Home Prices
The Conference Board's reading comes after another private report today showed home prices in 20 U.S. metropolitan areas fell by the most on record in July. Values dropped 3.9 percent in the 12 months through July, steeper than the 3.4 percent slump in June, according to the S&P/Case-Shiller home-price index. The index declined in January for the first time since the group started the measure in 2001, and has receded every month since then.
Price drops limit how much homeowners can borrow against their home equity to buy goods and services. Defaults by subprime mortgage borrowers and rising foreclosures will put more houses back on the market, adding to the glut and depressing prices further.
The Conference Board's measure of present conditions fell to 121.7 from 130.1 in August. The gauge of expectations for the next six months declined to 85.2 from 89.2.
The share of consumers who said jobs are plentiful decreased to 25.7 percent in September from 27.5 percent the prior month. The proportion of people who said jobs are hard to get increased to 22.1 percent from 19.7 percent.
Michigan Report
Other reports also point to a less upbeat outlook. The Reuters/University of Michigan preliminary index of consumer sentiment remained near the lowest level in a year in September, according to the latest survey.
Compared with other sentiment gauges, the Conference Board's index tends to be more influenced by consumer attitudes about the state of the labor market, economists said.
While job losses at construction and mortgage-related firms have risen recently, businesses in other industries are retaining their staff until there's more evidence an economic slowdown will occur, economists said.
The number of Americans filing claims for jobless benefits fell in the week ended Sept. 15 to the lowest level in almost two months, the Labor Department reported last week. The number of people continuing to collect state unemployment benefits plunged by the most since May.
Gasoline Prices
The price of regular unleaded gasoline, which reached as high as $3.05 a gallon in July, slid to $2.81 as of yesterday, according to AAA. The relief may be short-lived, some economists said.
The stock market recovered from a plunge in August after concern about rising subprime defaults triggered tumult in global credit markets and made investors nervous. From its low on Aug. 15, the Standard & Poor's 500 index increased almost 8 percent as of yesterday's close.
That's partly why consumers aren't slashing expenses yet.
``We would expect to find some erosion in consumer expenditures, but we haven't seen it yet,'' former Fed chairman Alan Greenspan said in an interview Sept. 20. Still, the odds of a recession remain ``somewhat more'' than one in three even after the Fed's rate reduction, he said.
Some companies are seeing softer demand for items such as automobiles. CarMax Inc., the biggest used-car dealer in the U.S., cut its full-year profit forecast because of slowing sales and higher credit costs.
``It is difficult to predict how long the current conditions may persist,'' Tom Folliard, chief executive officer of the Richmond, Virginia-based company said Sept. 19 in a statement.
Those faring better include Best Buy Co., the largest consumer-electronics retailer, which last week increased its yearly earnings forecast after reporting an unexpected rise in profit for the quarter ended Sept. 1.