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Confidence drops sharply
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November 27, 2001: 12:58 p.m. ET
November consumer confidence falls, but October existing home sales jump.
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NEW YORK (CNN/Money) - Consumer confidence fell for the fifth straight month in November, a report said Tuesday, and the decline was unexpectedly steep as Americans became even more selective about spending in a slowing economy after the Sept. 11 attacks.
Separately, sales of existing homes rose 5.5 percent to 5.17 million units in October, a real estate group said, well above forecast by economists for a reading of about 5 million units.
However, a chunk of the October existing home sales number reflects closings that had been delayed from September after the terrorist attacks, said Walter Molony, a spokesman for the National Association of Realtors.
"We think that sales might ease a little bit in November, but they should stay within a fairly narrow range through the first quarter," Molony said.
The NAR is projecting a 1.3 percent increase in existing home sales for the year.
The Consumer Confidence index dipped to 82.2 points in November from an adjusted 85.3 reading in October, according to private research group The Conference Board. Analysts on average expected a reading of 86.5, according to a survey by Briefing.com.
The drop in confidence sparked a selloff on the financial markets Tuesday, with the Dow down 115.27 at 9,867.48 at 12:50 p.m. ET. The Nasdaq was down 18.48 at 1,922.75, and the S&P 500 Index was down 11.38 at 1,146.04.
Kathleen Camilli, chief economist at Tucker Anthony, was not discouraged by the declining confidence number, saying she anticipates further declines as unemployment continues to rise and the economy bottoms out by the end of the first quarter of 2002. That, she said, will set the stage for a recovery by next spring.
"People are saying the stock market is giving indications the economy is going to turn, and if the market leads by six months, I would expect a recovery about June," Camilli said.
David Orr, chief economist at Wachovia Securities, said he also anticipates a further rise in unemployment.
"In our view, current financial market psychology is under-estimating the negative impact that rising joblessness will have on the housing and motor vehicle markets in the first half of 2002," Orr said in a research note Tuesday.
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CNNfn's Lisa Leiter reports on consumer confidence numbers.
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Economists and the Federal Reserve closely track consumer confidence since consumer spending drives 75 percent of the U.S. economy, which has been steadily slowing for about a year.
In an effort to staunch the declines and fend off recession, the Fed has lowered interest rates 10 times this year, with three of those cuts coming after Sept. 11. But the cuts did not stop gross domestic product, the broadest U.S. economic measure, from sliding into negative territory in the second quarter.
A recession is defined as two consecutive quarters of declining GDP. Although that has not yet happened, on Monday the National Bureau of Economic Research, a nonprofit organization, officially declared the U.S. to be in a recession.
The Conference Board's present situation index tumbled to 93.5 from 107.2.
"Rising unemployment and continuing layoff announcements are dampening confidence," said Lynn Franco, director of the Conference Board's Consumer Research Center. "A turnaround in confidence levels is not likely before year's end, nor are retailers likely to enjoy a blockbuster holiday season."
Click here for CNN/Money's economic calendar
More consumers rate current business conditions as "bad" as they continue to cope with rising unemployment, according to the Conference Board. The number of consumers claiming jobs are "hard to get" rose to 23 percent from 20.6 percent the previous month.
Analysts have been predicting a sluggish holiday shopping season, the most crucial time for retailers, saying consumers are likely to hold back on spending to weather the economic downturn.
On Tuesday, discount retailer Kmart Corp. (KM: down $0.35 to $6.50, Research, Estimates) and sporting goods chain Sports Authority (TSA: down $0.38 to $5.07, Research, Estimates) reported third-quarter results that fell short of Wall Street expectations, both citing the slowing economy.
Analysts have also said Americans turned toward their homes and families in the wake of the Sept. 11 terrorist attacks, when hijackers slammed passenger jets into the World Trade Center and Pentagon, killing thousands.
Tuesday's existing home sales figures from the National Association of Realtors appeared to support that view, as Americans continued to take advantage of low mortgage rates.
But Camilli cautioned that figures on existing home sales can be somewhat misleading since they reflect closings for a particular period, not actual sale contracts signed.
"Existing home sales is not a timing indicator of any sort. It's just a measure of recent activity," Camilli said. "The reason activity is still relatively high is because of the lower interest rate environment. Most people are still working, and as long as you have an income you can still buy a home." 
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