Job losses hit June consumer confidence
Some economists say the reality check offered by Tuesday's report from the New York-based Conference Board may not augur well for spending in the critical months ahead.
The Conference Board said its Consumer Confidence Index now stands at 49.3, down from its revised May level of 54.8.
The drop coincided with mixed messages in the housing market. A report from the Treasury Department showing foreclosures jumped in the first quarter compared with 2008's fourth quarter. But a key housing price index showed price declines moderating.
Job security — a key factor in shoppers' willingness and ability to spend — continued to plague consumers surveyed by the Conference Board. And the Labor Department, which reports June's job data Thursday, is expected to show unemployment climbed.
"Consumers are making a more somber and accurate assessment of the economy and their own financial position," said Mark Vitner, senior economist at Wachovia. "Consumers may be thinking less bad is not good enough."
Because consumer spending accounts for more than two-thirds of economic activity in the United States, economists and investors watch it closely. The Dow Jones industrials fell 84.1 points, or 0.99 percent, to end Tuesday at 8,448.06 and reverse a small gain in the morning before the Conference Board report came out.
Both components of the consumer confidence gauge fell this month. The Present Situation Index of how shoppers feel now about the economy declined to 24.8 from 29.7 in May. And the board's Expectations Index, shoppers' outlook for the next six months, dropped to 65.5 from 71.5.
Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement that the decline in consumers' view of the current economy implies "that economic conditions, while not as weak as earlier this year, are nonetheless weak."
Consumer sentiment has risen markedly from its new historic low of 25.3 in February. But confidence is still well below what's considered healthy. A reading above 90 means the economy is on solid footing. Above 100 signals strong growth.
Economists surveyed by Thomson Reuters had projected confidence would hold steady at 55 this month after surges in April and May helped by a stock market rally that has now shown signs of fizzling.
In May, the figure zoomed 14 points past economists' expectations to its highest level since September, when it was 61.4. Economists surveyed by Thomson Reuters had expected a reading of 42.3 last month.
The rise this spring didn't translate into relief for merchants, however, and stores are aggressively discounting summer inventory to keep it moving, though sales declines have moderated in recent months.
Brian Bethune, chief economist at IHS Global Insight, said he expects the confidence gauge to hover between 50 and 60 this year. He anticipates a moderate recovery in consumer spending this year but no significant rebound until 2010.
"The fundamentals of consumer spending are very weak," he said.
Rising foreclosures could derail a turnaround. The Treasury report said the number of homeowners at least two months behind or in foreclosure jumped in the first quarter from the previous quarter.
The report dampened any glimmer of hope coming out of the Standard & Poor's/Case-Shiller index, which showed yearly losses in 13 metro areas improved in April compared with March. And the 18.1 percent tumble in the index of 20 major cities in April compared with the year before marked the third straight month with a decline that was not a record.
Still, the 20-city index is off almost 33 percent from its peak in the second quarter of 2006, which means home values are now around 2003 levels.
Of the households responding by June 23 to a Conference Board mail survey sent to 5,000 households after June 1, 44.8 percent said jobs are "hard to get," up from 43.9 percent in May. Those saying jobs are "plentiful" decreased to 4.5 percent from 5.8 percent.
Respondents who anticipate more jobs in the months ahead decreased to 17.4 percent from 19.3 percent, while those anticipating fewer jobs increased to 27.3 percent from 25.6 percent.
The Labor Department is expected to report Thursday that the unemployment rate has risen to 9.6 percent from 9.4 percent in May. And economists surveyed by Thomson Reuters project that employers will shed 363,000 jobs, up from 345,000 in May.
Amid these economic woes, consumers are saving more. Instead of splurging at the mall, households used most of their federal stimulus payments to boost savings to the highest rate in more than 15 years in May, a government report last week showed.
AP Real Estate Writer J.W. Elphinstone in New York contributed to this report.