Confidence Slumps on Concern for Economy

NEW YORK — U.S. consumer confidence slumped to one-year lows in October over worries about oil prices, shaky stocks and slowing growth, but new-housing data Tuesday showed the economy remained on a solid footing.

Sales of new single-family homes in September shot up 9.2% to an annual rate of 946,000 units, the Commerce Department said in a report that far surpassed Wall Street expectations. Economists said there has been a strong revival in new-home sales in the past few months.

The Conference Board, a private research group, said its consumer confidence index fell sharply to 135.2 in October from 142.5 in September. The latest reading was the lowest since October 1999 and well below the 140.2 forecast in a Reuters survey of economists.

The group’s present situation index slipped to 177.0 from 182.5 in September and consumers were less optimistic about the short-term outlook, sending the Expectations index down to 107.4 from 115.9.

“Both components of the consumer confidence index posted declines, triggered by a cooling economy and apprehension regarding soaring oil prices and volatility in the financial markets,” said Lynn Franco, director of the Conference Board’s Consumer Research Group.

U.S. markets have been under a cloud lately, hampered by a combination of troubling events including an explosion of violence in the Middle East, an inflationary threat from rising oil prices, slower economic growth and uncertainty about the outcome of next week’s U.S. presidential election.

The new confidence numbers show that those concerns are starting to chip away at the optimism of U.S. consumers.

In another report Tuesday, the Chicago Purchasing Managers October index fell to 48.7 from 51.4 in September, indicating contraction in regional manufacturing. But analysts said the weakness in industry does not necessarily bode ill for the broader economy.

“Overall, this report serves to emphasize the contrast with the consumer sector, where the housing market is clearly on a roll again despite the probably temporary dip in confidence,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a research note. “We expect consumers to keep spending.”

Federal Reserve Board Vice Chairman Roger Ferguson, speaking in Seattle, said the central bank’s six interest rate hikes since mid-1999 appear to have succeeded in slowing the economy and containing inflation.

“Economic growth appears to have moderated to a more sustainable pace, raising the odds that we have avoided the development of economic imbalances that have led to the end of past economic expansions,” Ferguson told a group of bankers.

Though the Fed seems pleased with the economy, stock market gyrations recently have unnerved consumers whose spending accounts for about two-thirds of the economy.

“This drop in confidence--the biggest since October 1998--is a consequence of the weakness of the stock market between mid-September and mid-October,” Shepherdson said.

Consumers also were rattled by slowing growth. Gross domestic product expanded at the slowest rate in more than a year in the third quarter, at a 2.7% annual pace compared with 5.6% in the second quarter.

Meanwhile, a spike in crude oil prices has raised the specter of inflation. U.S. crude rose another $2 per barrel in October and is up about $7 so far this year. Oil prices have tripled since the end of 1998.

Crude oil futures in New York eased 11 cents to close at $32.70 a barrel Tuesday.

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New-Home Sales

Seasonally adjusted annual rate, in thousands of units:

September: 946,000 units

Source: Commerce Department

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Consumer Confidence

From a monthly survey of 5,000 U.S. households. Index: 1985=100.

October: 135.2

Source: Conference Board