Consumer Confidence Plunges in Jan.

NEW YORK (AP) â€” Consumer confidence fell sharply in January to its lowest level in four years, driven down by growing fears of a recession, an industry group said Tuesday. <br><br>The survey came as

Tuesday, January 30th 2001, 12:00 am

By: News On 6

NEW YORK (AP) â€” Consumer confidence fell sharply in January to its lowest level in four years, driven down by growing fears of a recession, an industry group said Tuesday.

The survey came as Federal Reserve officials met to determine whether or not to cut interest rates in an attempt to stimulate the struggling U.S. economy.

The Consumer Confidence Index dropped more than 14 points to 114.4, the lowest level since December 1996 when it was 114.2, the Conference Board reported.

The decline in confidence raises a new alarm about the fragility of the economy, with consumers decidedly more pessimistic about business and employment conditions, said Lynn Franco, director of the Conference Board's Consumer Research Center.

``Since apprehension leads to caution and cautious consumers spend less than the confident ones, confidence levels in February will be carefully watched,'' Franco said. ``Further erosions in consumer confidence will create more serious concerns about the overall health of the economy.''

But economists noted that consumers continue to view the current situation in relatively favorable terms, with their doubts focused on the future. The question is whether consumers act on those fears, observers said.

``Historically, when we see confidence decline, we have to watch and see if it shows up also effecting spending,'' said Gary Thayer, chief economist with A.G. Edwards & Sons in St. Louis. ``We'll be watching closely to see ... whether the decline in confidence is more of a psychological factor or a real factor affecting spending.''

The Conference Board index, based on a monthly survey of some 5,000 U.S. households, is considered a key indicator because consumer spending accounts for about two-thirds of the nation's economic activity. The index compares results to its base year, 1985, when it stood at 100.

The new report will be watched particularly closely, since it follows remarks by Federal Reserve Chairman Alan Greenspan emphasizing the importance of consumer confidence.

Greenspan said last week that whether the economy dropped into recession would be determined by how well consumer confidence holds up during the slowdown. For now, he said, he does not believe ``the fabric of consumer confidence'' has been shaken enough to bring on a recession.

The Federal Open Market Committee opened a private two-day meeting on interest rate policy Tuesday. An announcement of the policy-makers' decision on whether to cut rates is expected Wednesday afternoon.

The markets were mixed following the release of the report, with the Dow Jones industrial average up 40 points to 10,743 and the Nasdaq composite index up 4 points to 2,843.

Consumer confidence, which rested at a revised level of 128.6 in December, has fallen four months in a row since the index recorded 142.5 in September. The last time the index fell below 114.4 was in December 1996 when it measured 114.2, the Conference Board said.

The Conference Board said consumers' expectations for the next six months have worsened. Of those surveyed, 15.7 percent expect business conditions to worsen, compared with 10.1 percent last month. Meanwhile, only 12.4 percent of consumers expect conditions to improve, down from 16.9 percent last month.

About 21.8 percent of consumers expect fewer jobs to become available, up from 15.7 percent in December, the Conference Board said.

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