WASHINGTON - The Conference Board yesterday reported consumer confidence plunged in July, prompting analysts to predict spending and the economy in general will remain weak in the coming months.
The Conference Board's Consumer Confidence Index for July posted its largest decline in nine months. This surpassed many analysts' forecasts of a modest fall, which they said was bound to result from June's generally poor economic indicators, including the eight-year high unemployment rate of 7.8%.
Based on a monthly survey of U.S. households, the July index of 61.0 was down 11.6 points from the June index of 11.6. The June number resulted from four straight monthly increases, beginning with the February index of 47.3, which is the lowest so far this year, the Conference Board said.
"The July index is terribly weak, no question about it," said Alan Lerner, economist with Bankers Trust Co. "It amplifies the problems we're having in the economy."
Mr. Lerner explained that the surprisingly weak July index provides renewed evidence that the American consumer remains very pessimistic about the economy in general and skittish about picking up the spending pace.
But Mr. Lerner also said the July downturn will not prompt him to revise his forecast of a 1.5% to 2.0% rise in gross domestic product in the second half of 1992. "The index could come right back next month," he said.
Henry Willmore, an economist with Chase Manhattan Bank, agreed, saying he is not ready to pare back his current GDP forecast, also at 1.5% to 2.0% growth in the second half of this year. He said he prefers to watch the index's three-month moving average. "We really need to wait another month to see what's happening."
However, Paul Anton, an economist with Bugbee, Anton and Associates Inc., in Minneapolis, said the July index does have a small impact on his growth expectations, currently at 1.9% growth in the second half of the year. "It does chip into the margin of my forecasts," he said.
Mr. Lerner and Mr. Willmore said they expect the August index to regain at least part of the July loss. But both said that requires an improvement in the labor market. "I think you'll see an improvement in the index next month because of better employment numbers," Mr. Lerner said.
Both warned that consumer confidence could decline further if the labor market continues to worsen. "The key to all this is the July employment number coming out next week," Mr. Willmore said. "An interesting thing about the current situation is that a lot of people with jobs are also feeling less confident about the economy."
The Conference Board said participants in the July survey were more negative about both prevailing economic conditions and their expectations of the coming months.
According to the survey, consumers' intentions of buying homes and appliances are markedly lower than a month ago. However, their plants to buy new cars are up after a decline in June.
"The decline in consumers' spirits evidently reflects the faltering in the nation's economic recovery," said Fabian Linden, executive director of the Conference Board's Consumer Research Center.
In July, less than 11% of all survey participants said prevailing business conditions are "good," while over 43% said they are "bad." Both of these numbers are more pessimistic than a month ago, the Conference Board said.
The index is based on a survey of 5,000 U.S. households, including all geographic regions, age groups, and income levels, the Conference Board said.