U.S. Consumer Confidence Dropped More Than Forecast

U.S. Consumer Confidence Dropped More Than Forecast (Update1)

By Shobhana Chandra

Nov. 27 (Bloomberg) -- Consumer confidence fell more than forecast in November as Americans struggled with surging fuel costs and falling home prices.

The Conference Board's confidence index decreased to 87.3, the lowest since the aftermath of Hurricane Katrina in October 2005, from a revised 95.2 the prior month, the New York-based group said today. The index averaged 105.9 last year.

The gloomier mood raises the risk holiday sales, which account for a fifth of retailers' yearly revenue, will weaken. Federal Reserve policy makers and private economists have cut growth forecasts as the deepening housing slump and reduced bank lending add to concern consumers will cut back even more in 2008.

``It's clear the consumer is becoming more aware of the pressures being put on them,'' Lindsey Piegza, an analyst at FTN Financial in New York, said before the report. ``Heating bills are going to take a big bite out of disposable incomes that otherwise would have gone toward holiday shopping.''

Consumer confidence was forecast to drop to 91, from an originally reported reading of 95.6 for October, according to the median estimate in a Bloomberg News survey of 67 economists. Projections ranged from 88 to 96.

The Conference Board report comes after S&P/Case-Shiller's index showed home prices fell 4.5 percent in the third quarter form the same time last year, the most since record keeping started in 1988.

Property Values

Property prices may keep sliding in coming months as slowing sales and rising foreclosures aggravate the glut of unsold homes, economists said. Subprime mortgage foreclosures will cut home values by $223 billion, the Center for Responsible Lending said in a report this month.

Treasury securities remained lower and stocks prices were higher after the reports as Abu Dhabi's investment in Citigroup Inc. eased demand for the relative safety of government debt.

Lower property values make it harder for owners to tap home equity, while gasoline at more than $3 a gallon and higher home- heating bills also sour Americans' mood. A report last week showed the Reuters/University of Michigan sentiment index fell this month to a two-year low.

Compared with other sentiment gauges, the Conference Board's index tends to be more influenced by attitudes about the state of the labor market, economists said.

More Claims

An average of 330,000 workers filed first-time claims for jobless benefits per week in November, up from 306,000 as recently as July. The increase suggests firings are mounting as businesses try to cut costs.

Fed policy makers are counting on wage gains to help Americans maintain spending, according to the minutes of their Oct. 31 meeting. Still, there was a risk falling home prices could ``further sap consumer confidence.''

The Conference Board's measure of present conditions fell to 115.4 from 118 the prior month. The gauge of expectations for the next six months decreased to 68.7, the lowest since March 2003, from 80.

Today's report showed the share of consumers who said jobs are plentiful retreated to 23.2 percent in November from 24.1 percent the prior month. The proportion of people who said jobs are hard to get also decreased to 21.3 percent from 22.8 percent.

The proportion of people who expect their incomes to rise over the next six months dropped to 18.7 percent from 19.9 percent. The share expecting more jobs decreased to 10.8 percent from 13.3 percent.

Less Spending

The number of people planning to buy a home or an automobile within the next six months fell.

Retailers are bracing for a slowdown through the holidays and into 2008. Target Corp., the second-biggest U.S. discounter, last week reported its first profit decline in two years, and said it expects slowing sales growth through the first quarter.

The National Retail Federation this week maintained its forecast that combined sales for November and December will show the smallest increase in five years even after purchases were stronger than forecast after the Thanksgiving holiday. Americans spent less per person even as more went shopping, the group said.

``Elevated energy costs and the anticipation of further increases continues to impact Americans' ability to spend on discretionary projects,'' Robert Niblock, chief executive officer of Lowe's Cos., the second-largest home improvement retailer, said on a conference call last week. ``Access to mortgage financing is a concern we'll continue to watch.''