Consumer confidence tumbles in February

By Chavon Sutton, staff reporter


NEW YORK(CNNMoney.com) -- A closely-watched measure of consumer confidence fell sharply in February after three straight months of improvement, a research group said Tuesday.

The Conference Board, a New York-based research group, said its Consumer Confidence Index fell to 46.0 in February from 56.5 in January.

According to a Briefing.com consensus survey, economists expected the index to fall slightly to 55.0 from 55.9. The index, which is based on a survey of 5,000 U.S. households, is closely monitored because consumer spending drives two-thirds of the nation's economic activity.

The overall index remains at historically low levels and is the lowest since April 2009. A reading of above 90 indicates a stable economy, while 100 or greater is an indication of strong growth.

"One report does not a trend make," said Carl Riccadonna, senior economist for Deutsche Bank in New York. "This is a yellow flag but not a critical development to be sure. At economic turning points, we often show volatile fits and starts."

February's present situation index, which indicates how consumers feel about current economic conditions, hit a 27 year low of 19.4, according to the Conference Board. That means that consumers feel things are worse now than they were during the throes of the financial crisis in the fall of 2008.

Riccadonna said the significant decline on the heels of three months of gains is similar to what happened after the recession of 1981-1982. At that time, the present situation index also experienced violent swings before leveling off.

Expectations for the future also took a turn for the worse in February. The expectation index, a measure of consumer outlook over the next few months, fell to 63.8 from an upwardly revised 77.3 in January. Only 16.7% of consumers expect to see an improvement in business conciliations over the next 6 months, down from 20.7%. Some 15.3% of those surveyed expect business conditions to get worse over the next six months.

The outlook for the labor market was even more bleak. The percentage of those who expect fewer jobs to become available jumped to 24.6% from 18.9% in January. And only 9.5% of those surveyed anticipated an increase in their incomes, compared to 11.0% in January.

"Employment is the driving factor of consumer confidence," said Riccadonna, who expects the index to see a boost in March when he predicts the first positive payroll numbers.

Riccadonna cautioned against viewing this individual report as a sign of a double-dip recession, since other economic indicators such as employment and housing are showing steady signs of improvement.

For example, unemployment ticked down to 9.7% in January from 10.0% in December. And the S&P/Case-Shiller Home Price Index released today showed continued slowing in home value declines across the U.S.

"Clearly the trend of consumer confidence bears continued scrutiny," said Riccadonna. "I'm putting an asterisk by today's number. This is not an indication of double dipping, but rather typical behavior."  To top of page

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