Consumer confidence drops
Private research firm's sentiment index comes in much lower than expected.
February 26, 2002: 11:38 a.m. ET
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NEW YORK (CNN/Money) - The confidence of U.S. consumers fell in February, a private research group said Tuesday, as a pillar of strength in an economy enduring a recession may be showing the strain of a weak labor market.
The Conference Board, a private research group, said its index of consumer confidence fell to 94.1 in February from a revised 97.8 in January. Economists surveyed by Briefing.com expected confidence to fall to 97.0.
"The employment situation, which has the most direct impact on everyone's lives and outlook, is still precarious, and that's causing a lot of anxiety," said Oscar Gonzalez, economist at John Hancock Financial Services. "They're worried about their jobs, but at the same time, I think they sense that this mild recession appears to be ending, and that will raise their hopes."
Despite the fact that the Conference Board's Expectations Index, which measures how consumers feel about the economy's future, also fell to 93.6 from 97.6, the firm's research director was still optimistic.
"While confidence has weakened from January's level, both components of the index still point to healthy consumer spending in the months ahead," said Lynn Franco, director of the Conference Board's Consumer Research Center. "The consumer will continue to provide solid spending support as the economy moves into recovery."
The firm's Present Situation Index also fell to 94.8 from 98.1, indicating consumers' view of current economic conditions has also soured.
U.S. stock prices reacted negatively to the data and were mixed in early trading. Treasury bond prices fell.
To keep consumers spending and to fight off the effects of a recession that some economists think began in March 2001, the Federal Reserve cut its target for short-term interest rates 11 times in 2001. The Fed's efforts paid off in resilient consumer spending on houses and other goods despite sluggish stock prices and rising unemployment.
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But some economists worry that a high level of consumer debt, mounting layoffs, and a stock market weighed down by concerns about accounting problems, such as those that plagued bankrupt energy trader Enron Corp., will temper spending the rest of the year.
Consumer spending fuels two-thirds of U.S. gross domestic product (GDP), the broadest measure of economic strength. Unfortunately, the biggest headwind to consumer confidence is likely the labor market, which historically gets worse even as the economy recovers.
"In the early stage of an economic recovery it is almost normal to see some volatility in consumer confidence because the jobless rate continues to rise, jarring people's confidence," said Sung Won Sohn, chief economist at Wells Fargo & Co. "However, all the pieces are in place to generate recovery, including healthy spending, robust housing and record low [business] inventories."
"Once the employment picture stabilizes, around midyear, we should see a more rapid and sustained recovery in consumer confidence," Sohn added. 
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