Amid Job Woes, Conference Board Index Plummets
Prompted by bad news about employment, consumer confidence tumbled almost 16% this month.
The Conference Board's index of consumer confidence in the economy fell 11.6 points to 61 in July, a dramatic turnaround from four months of rebound in the research group's closely watched findings. The index has not fallen so precipitously since last October, when it fell to 60.1 from 72.9.
That's bad news for the economy and bad news for bankers. For the nation to emerge from its economic doldrums, many bankers say, individuals - who account for two-thirds of gross domestic product - must be willing to spend money.
The desire to spend is often linked to how confident people feel about their economic futures.
"You're just going to see much more conservative attitudes [on spending]," said Glenn Bowman, senior vice president and treasurer of Dominion Bankshares Corp. in Roanoke, Va. "We expected a much more moderate decline for this month."
Spending Plans Plunge
Indeed, the Conference Board found that plans for major purchases dropped in the first three weeks of July. Only 2.7% of people interviewed plan to buy a home within the next six months, down from 3.6% in June.
Fewer than one out of five respondents, or 19%, said they would purchase a major appliance, down from 27.6% in June.
Buying plans have not been so low since late 1990, in the,two months preceding the start of the Persian Gulf War.
The monthly survey, based on interviews with 5,000 household heads, found that only 14.1% of respondents expecting more jobs by yearend, down from 19.2% in June.
The survey was conducted after the Labor Department reported that unemployment in June climbed to 7.8%, and after the Federal Reserve Board moved to push down interest rates.
"It's one of the biggest drops," said Jason Bram, an economist for the Conference Board.
Long-term Yields Drop
The unfavorable report on consumer confidence, with its prospect for continued sluggishness in the economy, triggered a sharp decline in the yields of 30-year Treasury bonds to 7.43% Tuesday afternoon from 7.51% Monday.
However, home mortgage rates, which often move in tandem with Treasuries, did not ease.
Mortgage bankers explained this by noting that yields on mortgage-backed securities have been rising relative to Treasuries this week out of heightened concern among investors about early repayment of loans. Most lenders keep close watch of the mortgage securities market in setting their rates.
One of the few brights spots in the Conference Board report was in auto lending. Just under 7.5% of respondents expect to buy a car within the next six months, up from 6.7% last month.