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News > Economy
Confidence tumbles again
February 27, 2001: 3:18 p.m. ET

Home sales fall sharply; U.S. orders come in weaker than forecast
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NEW YORK (CNNfn) - Consumer confidence plunged to a 4-1/2-year low in February, a private research group said Tuesday, while the U.S. government released separate reports showing weakness in housing and durable goods orders last month.

The data pointed to more weakness ahead for the U.S. economy and sparked a new round of worries about the extent of the economic slowdown. Some analysts say the latest round of disappointing economic reports could persuade the Federal Reserve to slash interest rates again before the central bank's next meeting March 20. But others worry that the Fed may not be able to do enough to ward off a recession.

The Conference Board reported that its index of consumer confidence dropped to 106.8 from January's revised 115.7, as Americans fretted about the job market and other economic conditions. Wall Street forecasts were for a reading of about 111.

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  While the short-term outlook continues to signal a severe economic downturn, consumers' appraisal of current economic conditions suggests we are still undergoing moderate growth and not a recession.  
     
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  Lynn Franco
Director
Conference Board's Consumer Research Center
 
Consumer confidence has not been this low since June 1996, when the index measured 100.1. Americans' confidence is watched closely by policy makers since consumer purchases fuel about two-thirds of the nation's economy. The index soared to an all-time high of 144 last year, but has crumbled as stocks have plunged and job cuts have risen.

"The erosion in consumer confidence continues to be fueled by weakening expectations regarding business and employment conditions," said Lynn Franco, director of the Conference Board's Consumer Research Center. "While the short-term outlook continues to signal a severe economic downturn, consumers' appraisal of current economic conditions suggests we are still undergoing moderate growth and not a recession."

The New York-based group's report, based on a survey of 5,000 U.S. households, found that the percentage of consumers expecting a pickup in business conditions fell to 11.1 percent, from 13.1 percent in January. Only 10.2 percent of consumers anticipated more jobs to become available, down from 11.7 percent in the prior month. Only 22.1 percent expect their incomes to rise, down from 24.1 percent in January.

graphicAdding to the pessimism Tuesday were two reports released by the Commerce Department.

The government said new home sales registered their sharpest monthly decline in seven years last month, suggesting that the overall economic slowdown may be catching up with the housing market.

The number of new, single-family homes sold in January slipped 10.9 percent to an annual rate of 921,000, down from a record 1.034 million annual rate in December. It was the largest monthly decline since a 23.8 percent drop in January 1994.

Earlier Tuesday, the government reported that U.S. orders for long-lasting goods fell 6 percent in January to their lowest level since June 1999, amid weaker demand for airplanes and parts. Orders for all types of durable goods fell to $202.02 billion last month, the lowest level since $197.10 billion in June 1999, the Commerce Department said.

The plunge was much weaker than the 2.5 percent decline anticipated by economists. In December, durable goods orders rose a revised 1.2 percent. The gain initially was reported at 2.1 percent.

What will the Fed do?

The bond market rallied Tuesday, but stocks lost ground. Several analysts said the stock market already has factored in the potential for a surprise interest rate cut. Economists at Bear Stearns have helped fuel the speculation about a possible rate reduction, predicting that there is an 80 percent chance the Fed will cut rates by the end of the week.

Bear Stearns senior economist John Ryding said Tuesday that the latest data "really leaves us on track with our call that the Fed will cut interest rates this week," he said. "I don't see anything here that supports the earlier optimism by the chairman that January somehow marked some sort of improvement in the economy."

Earlier this month, Fed Chairman Alan Greenspan signaled in testimony to Congress that U.S. economic growth has slowed substantially but that there are some hopeful signs that the country will emerge quickly from the downturn. Greenspan is scheduled to deliver additional Congressional testimony on Wednesday.

Investors also are awaiting President Bush's address to Congress Tuesday night on his tax cut plan. Some analysts said Greenspan likely would not want to announce a rate cut until after Bush's address.

"We're going to see what Bush says tonight, and we're going to see what Greenspan says tomorrow -- now that's a real one-two punch," Muriel Siebert, founder and CEO of Muriel Siebert & Co. Inc., told CNNfn's The Money Gang. graphic


-- from staff and wire reports





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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.