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Low Consumer Confidence Dampens Hope For Holiday Shopping

The holiday shopping season could be worse for U.S. retailers than believed earlier as consumer confidence fell lower than expected over concerns about the nation’s unemployment numbers.

The Consumer Confidence Index released by the New York-based Conference Board dropped to 47.7 in October - lower than the 53.1 predicted by forecasters. The index this year has risen as high as 53.4 in September and dropped to the lowest level ever with 25.3 in February.

A reading above 90 means the economy is solid while above 100 indicates expectations of strong growth. The Consumer Confidence Index survey, which was sent to 5,000 households, measured the period through Oct. 21.

Because spending on goods and services by Americans accounts for more than two-thirds of U.S. economic activity, the index is watched closely by economists to forecast spending over time. That’s especially true for the expensive, big-ticket items.

There have been mixed signals lately about the economy and there have been signs the recovery could be a slow one. But a lackluster business climate and joblessness have caused shoppers to have a dim outlook, according to The Conference Board. “Consumers also remain quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays,” said Lynn Franco, director of The Conference Board’s Consumer Research Center.

That’s not good news for retailers who traditionally see a high level of end-of-year revenue. Last year holiday sales experienced their largest drop since the U.S. Commerce Department began tracking data in 1967. This year economists predict sales will be flat in the best-case scenario.

Regarding shoppers’ judgment about the current situation, the index hit 20.7 in October, down from 23 in September. The October reading was the lowest since the 17.5 recorded in February 1983. “Consumers’ assessment of the present-day conditions has grown less favorable, with labor market conditions playing a major role in this grimmer assessment,” Franco said.

In a look at consumers’ expectations during the next few months, the expectation index fell to 65.7, lower than the 73.7 last month.

At least the economic news was better when it involved the housing market. The Standard & Poor’s/Case-Shiller home price index indicated prices climbed in August. That was the third increase in a row, which measures real estate transactions in 20 major cities, and a signal the housing recovery might be starting.

The home price index increased 1 percent from July to a seasonally adjusted reading of 144.5. Although prices fell 11.4 percent from August 2008, the annual declines have slowed down since February.

The new index reading indicates a widespread turnaround as prices have climbed month-to-month in 15 metro areas since June. Still, prices are at levels not seen in six years and have dropped nearly 30 percent from their peak in May 2006.