Confidence drop threatens back-to-school sales
NEW YORK (AP) — Americans are looking past the stock market surge and signs of a stabilizing economy and focusing on something more personal — job worries.
Consumer confidence fell this month, the Conference Board said Tuesday, presenting a big obstacle for already hammered stores as they head into the critical back-to-school shopping season.
The confidence index fell to 46.6, down from 49.3 in June and weaker than what economists were expecting. It takes a reading above 90 to signal Americans believe the economy is on solid footing.
The disappointing figure followed an upbeat report offering more evidence that the real estate market is showing signs of life. According to a widely watched index, home prices in May posted their first monthly increase since the summer of 2006.
But vanishing job security and reduced work hours continue to plague shoppers, who are relying more on their paychecks as two previous sources of money — credit cards and home equity loans — have shrunk.
When the Labor Department releases its monthly jobs report next week, economists expect it to show unemployment climbed to 9.7 percent in July, up from 9.5 percent in June and within shouting distance of its post-World War II high.
And the job cuts keep coming. Just Monday, Verizon Communications Inc. announced plans to slash more than 8,000 employee and contractor jobs before the end of the year.
Irma Sanches of Milwaukee was once a big spender. But now the 25-year-old single mother is having trouble finding a job that offers her flexibility to take care of her infant daughter. She was looking at toys at TJ Maxx on Tuesday but trying not to spend money.
“I’m a shopper, and right now I’m restricted to what I need,” said Sanches.
The weak consumer-confidence reading also pushed stocks lower. The Dow Jones industrial average finished down about 12 points at 9,097. Over the past two weeks, better-than-expected earnings reports have reignited the stock market rally. The average topped 9,000 Thursday for the first time since early January, but worries about the economy are putting the rally on hold again.
Americans’ lack of confidence presents a big hurdle for retailers because consumer spending accounts for more than 70 percent of economic activity. Confidence had been rebounding since March after reaching historic lows. Now, harsh economic realities are catching up with shoppers again.
“Even though we have seen an improvement in economic indicators, there hasn’t been any meaningful improvement in household finances,” said Mark Vitner, senior economist at Wells Fargo. “Consumers are not in the position to step up their spending in a major way. This doesn’t bode well for the back-to-school season.”
Frank Newport, editor-in-chief of the Gallup Poll, said recent surveys have picked up growing skepticism among Americans about the stimulus plan, hurting confidence.
Both components of the Conference Board’s consumer confidence gauge — one that measures shoppers’ current assessment of the economy and another that measures shoppers’ outlook over the next six months — further declined from last month.
The consumer confidence survey was sent to 5,000 households and had a cutoff date for responses of July 21.