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Consumer confidence plunges
Survey outlook hit by Wall Street woes, corporate scandals and job security concerns.
July 30, 2002: 2:33 PM EDT

NEW YORK (CNN/Money) - U.S. consumer confidence plunged in July, a private research firm said Tuesday, as the pillar of the economy's strength was shaken by declines on Wall Street, corporate scandals and concerns about the job market.

The Conference Board said its closely watched index of consumer confidence fell to 97.1 in July from a revised 106.3 reading in June. Economists expected the index to drop to only 101.5, according to

The measure was based on a survey of 5,000 households from July 1 through July 22, which means the reading was taken before last week's volatile week of trading that lifted many stocks by Friday's market close.

Different measures of the survey showed consumers were gloomier about both short- and long-term outlook. The group's Expectations Index, measuring what the consumers expect the situation to be six months from now, fell to 95.7 from 107.2 last month. The Present Situation Index fell to 99.2 from a 104.9 reading in June.

"The continued decline in the Present Situation Index suggests that consumers would tend to curb their spending in the absence of offsetting incentives," said Lynn Franco, director of the Conference Board's Consumer Research Center, who termed the July readings "a significant deterioration in consumer attitudes."

Consumer spending accounts for about two-thirds of the nation's economic activity, and sustained confidence in the face of an economic slowdown of the last two years has helped support the U.S. economy in the face of slower business spending.

As to consumers' business outlook, those who expect business conditions to deteriorate increased to 9.2 percent from 7.1 percent in June, while those anticipating an improvement in the months ahead fell to 20.9 percent from 23.7. Similarly, those expecting fewer jobs to become available in the next six months increased to 17.1 percent from 14.3 percent, while those expecting more jobs fell to 17.3 percent from 20.4 percent.

However, slightly more consumers said they intend to buy both a car or a house in the next six months than had those with such buying plans in June. Several economists pointed to those two readings as a sign that it is too soon to write off consumer spending despite the drop in confidence. They said that the timing of the survey, taken amid the selloff in the U.S. stock market but before the recent rally, could also be casting an unduly harsh view of consumer attitudes.

"The more important figure (than confidence) for the economy is what consumers actually do," said Mark Vitner, senior economist at Wachovia Securities. "Consumers are not sitting on their wallets just yet. But that is about the only bright spot in this morning's report. With consumers concerned about both their stock portfolios and employment prospects, spending will likely rise a little less rapidly this fall."

But the drop in confidence released Tuesday is overdue, and a further sign that consumer spending won't be able to continue at the robust levels that helped support the U.S. economy through the recent recession.

"Large declines in consumer expectations have historically been necessary but not sufficient conditions for spending slowdowns," said Susan Polatz, associate economist for Banc of America Securities. "In this instance, given the significant erosion of household net worth, beginning in early-2000, accelerating in recent months, and totaling $5 [trillion]-to-$6 trillion, we expect a softer trajectory for consumer spending in the six quarters ahead."

U.S. stocks were already off of Monday's large gains before the 10 a.m. ET confidence report, and they sank further following the report before rallying to recover some of the lost ground.  Top of page

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