Consumer Confidence Drops

Thursday, December 28th 2000, 12:00 am

By: News On 6

NEW YORK (AP) â€” Consumer confidence in December dropped to its lowest level in two years, an indication that consumer spending will continue to slow and hinting at future troubles for the economy, an industry group said Thursday.

The Conference Board's Consumer Confidence Index fell to 128.3, slightly below analysts' expectations. It was the third straight month of decline for the index and a drop-off from the revised 132.6 reported in November.

``This latest decline in Consumer Confidence suggests that consumer spending will cool further as we enter 2001,'' said Lynn Franco, director of the Conference Board's Consumer Research Center. ``While the overall index continues to signal economic growth, albeit at a slower pace, the continued decline in expectations is somewhat disconcerting.

``If expectations continue on this downward trend, a more severe slowdown may be on the horizon,'' Franco added.

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.

In a separate report, the Labor Department said new claims for state unemployment insurance fell sharply last week but still hovered at a level suggesting that employers' appetite for workers is waning a bit.

In addition, the National Association of Realtors reported Thursday that sales of previously occupied homes rose by 4.4 percent last month to a seasonally adjusted annual rate of 5.22 million, spurred on by cheaper mortgage rates. That was the highest level since a rate of 5.28 million in August.

The markets were slightly higher following the release of the reports, with the Dow Jones industrial average up 2 points to 10,805 and the Nasdaq composite index, which is on track for its worst year ever, up 17 points to 2,556.

Consumer confidence has fallen sharply since the index recorded 142.5 in September. The last time the index fell below 128.3 was in December 1998, when it measured 126.7, Franco said.

The most notable decline this month came in consumer expectations, a component of the overall index that assesses how consumers view the short-term future. That outlook dropped from a revised 101.2 in November to 95.8 in December.

In particular, the figures show 10.2 percent of consumers expect business conditions to worsen, compared with 8.3 percent last month. At the same time, however, 16.7 percent of consumers expected conditions to improve, up from 14.7 percent.

About 15.9 percent of consumers expect fewer jobs to become available, up from 13.6 percent in November, the Conference Board.

``It's just not as positive an outlook as had been the case in the summer and fall,'' said Kathleen Camilli, director of economic research at Tucker Anthony Sutro. ``One would have to conclude it's the impact of the stock market on people's perceptions. It's also the impact on employment, because employment conditions in some part of the country are starting to deteriorate.''

The report also showed a slight increase in the percentage of consumers planning to buy major appliances and automobiles in the next six months, but a slight drop in plans to buy new homes.

December's decline in consumer confidence is the latest evidence to show the U.S. economy is slowing. Many hope the index and other economic data will persuade the Federal Reserve to cut interest rates sooner, rather than later.

The Fed last week shifted its focus away from inflation to watching for signs of economic weakness; market watchers expect a rate cut sometime in January.

â€”â€”â€”

On the Net: http://www.conferenceboard.org