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U.S. confidence slips
December 28, 2000: 12:14 p.m. ET

Consumer index slips to lowest level in 2 years; home sales edge higher
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NEW YORK (CNNfn) - U.S. consumer confidence fell to its lowest level in two years in December, pointing to a weakening economy and continued belt-tightening by consumers, according to a report Thursday from a private organization.

Sales of existing homes rose 4.4 percent in November, according to a separate private report.

"It does appear that consumers are turning more cautious. The deterioration in the [consumer confidence] index was as expected," Jade Zelnick, senior economist at Greenwich Capital Markets told Reuters. "It seems that consumers are being affected by what they are hearing about the state of the economy and probably stock prices."

graphicThe Conference Board's key gauge of consumer confidence dipped to 128.3 in December from a revised 132.6 in November. This is the lowest level since December 1998, when confidence dipped to 126.7, said Lynn Franco, director of the Conference Board's Consumer Research Center.

The numbers indicate consumers feel less confident about their current situation and about the future, according to the business research group. Consumer confidence is watched closely by policy makers and investors because consumer spending fuels two-thirds of the U.S. economy.

Franco said declining consumer confidence suggests further cooling of consumer spending into 2001, and possibly a more severe slowdown on the horizon.

But some on Wall Street are hoping Federal Reserve Chairman Alan Greenspan will take the unusual move of announcing an interest rate cut ahead of the Fed's next meeting at the end of January. Investors believe such an act would go a long way toward shoring up confidence.

"They're trying to turn the boat very, very slowly and Wall Street may not be happy in the initial stages that they're doing that fast enough," Roy Blumberg, chief equity strategist at Stern, Agee & Leach, told CNNfn's Market Call Thursday. "So the first cut may not have as big an impact on stock prices as it should, but it should have a nice impact on the economy."

Home sales still strong

Meanwhile, the National Association of Realtors (NAR) reported that lower mortgage interest rates helped fuel an increase in existing home sales in November.

Sales rose to an annual rate of about 5.2 million last month from a revised rate of 5 million in October, the real estate group said.

While the drop in confidence was in line with Wall Street forecasts, the home sales numbers were a bit above the 5.06 million consensus estimate of economists ' estimates.

NAR President Richard Mendenhall said the drop in interest rates spurred more people to become first-time homebuyers.

"At this time of the year we see higher ratios of first-time buyers, especially singles and childless couples entering the market, and these are the people who benefit the most from lower interest rates," Mendenhall said. "In turn, this allows people to sell their existing homes and trade up to larger properties, which is why the market is doing so well."

Financial markets showed little reaction to the reports. graphic


Confidence dips, home sales up - Dec. 28, 2000

U.S. indicators edge lower - Dec. 27, 2000