Consumer confidence hits five-year low over worries

Economic growth isn’t expected until the second half of the year.

NEW YORK (AP) — Consumer confidence sank to a five-year low in March as tight credit markets, rising prices and worsening job prospects deepened worries that the economy has fallen into recession.

The Conference Board, a business-backed research group, said Tuesday that its Consumer Confidence Index plunged to 64.5 in March from a revised 76.4 in February. The March reading was far below the 73.0 expected by analysts surveyed by Thomson/IFR.

Meanwhile, a widely watched index of U.S. home prices fell 11.4 percent in January, its steepest drop since data for the indicator was first collected in 1987. The decline reported Tuesday in the Standard Poor’s/Case-Shiller index means prices have been growing more slowly or dropping for 19 consecutive months.

The Consumer Confidence Index has been weakening since July, and is watched because lower consumer confidence tends to result in lower consumer buying, which is a drag on the economy.

Lynn Franco, director of the Conference Board’s research center, said the latest index reading was the lowest since 61.4 in March 2003, just ahead of the U.S. invasion of Iraq.

“Consumers’ outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon,” she added.

Economist Bernard Baumohl, executive director of The Economic Outlook Group in Princeton Junction, N.J., said consumers’ pessimism “reflects the great anxiety that households have because there are just so many uncertainties that everyone faces.”

These include the weakening job market, the fact that incomes haven’t kept pace with inflation and “growing recognition that households are less wealthy now than a year ago because of both the decline in home prices and in the value of their financial investments,” he said.

Baumohl believes the economy fell into recession in the current quarter and that growth probably won’t resume until the second half of the year, after government stimulus programs have had a chance to work. These include measures by the Federal Reserve to boost credit markets and the plan by the Bush administration to distribute tax rebates starting this summer to encourage consumer spending.

The Fed on Tuesday said it had received bids of nearly $89 billion for $50 billion in short-term loans offered in its latest auction to banks. So far, the Fed has made $260 billion in such loans since December to help ease credit conditions.

Baumohl said government actions should help the economy resume growth later this year, but that the recovery could be weak.

“Even if we emerge from recession sometime this summer, the second half of the year is going to feel bad,” he said. “For most people, they won’t be able to tell if the economy is growing 1 percent or shrinking 1 percent.”