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Study: People See Light In Economy

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The Associated Press

Published: July 30, 2008

NEW YORK - Americans see a slice of sunlight for the economy, as a widely watched report on Tuesday showed that people are not as pessimistic about the future as they were a month ago.

The housing market is still falling, but so have gasoline prices - at least a little - and that was enough to spark a little hope amid the deepest economic gloom in 16 years.

Economists warn, however, that the slight uptick, which reverses a six-month slide since January, is likely to be only temporary and doesn't signal the beginning of a rally.

The Conference Board said Tuesday that its consumer confidence index stands at 51.9 for July - about half of what it was a year ago and still the lowest since the index registered 54.6 in October 1992, when the economy was coming out of a recession.

But July's reading was slightly higher than the revised 51.0 level for June and a bit better than the 50 economists expected. Still, they were cautious.

"The rebate checks have just been spent," said Bernard Baumohl, managing director of The Economic Outlook Group. "This is hardly the backdrop normally associated with a rebound in consumer confidence. What we'll see at best is a bounce around at these low levels for the next six to nine months. We are not going to get an improvement unless we get an improvement in housing and the job market sectors."

In fact, Baumohl thinks the odds of a recession this year have increased, citing the fading benefits of the federal stimulus checks, deteriorating household wealth and a slowdown of foreign economies.

There was more bad news about housing Tuesday. Home prices in May tumbled by the steepest rate ever, according to a closely monitored index. Prices fell by 15.8 percent, according to the S&P/Case-Shiller 20-city index. The narrower 10-city index plunged 16.9 percent, its biggest decline in its 21-year history.

But stocks rebounded a day after their steep tumble, as investors latched on to a drop in oil prices and the rise in confidence. The Dow Jones industrial average rose 266.48 points.

Economists and investors closely monitor sentiment since consumer spending represents about two-thirds of all economic activity. The tax rebates helped lift retail sales in May and June, but those benefits have faded.

Analysts worry about shoppers having extra money to spend on clothing and other nonessentials in the important back-to-school season.

Baumohl said that although the slight decline in gas prices has had a psychological effect on consumers, whether prices will fall more is uncertain.

The latest national survey showed that gas prices have dropped a fraction below the $4 mark. The average price of regular gasoline at self-serve stations was $3.996 a gallon Friday, according to the Lundberg Survey of 7,000 gas stations. Prices are at their lowest level since May 16, but the survey showed that the average U.S. price is $1.11 higher than it was a year ago.

The Conference Board's Present Situation Index, which measures shoppers' assessment of the economy, was virtually flat at 65.3, compared with 65.4 in June. The Expectations Index, which measures their outlook over the next six months, rose to 43.0 from 41.4.

"Consumers' assessment of current conditions was little changed, suggesting there has been no significant improvement, nor significant deterioration, in business or labor market conditions," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement. She said that although people are grim about short-term prospects, the modest improvement in their outlook provides a glimmer of hope. The slight improvement in the outlook "bears careful watching over the next few months," Franco said.

Economists are also watching the job market, since job security is key to consumers' confidence and willingness to spend. Cautious employers have cut jobs each month this year. Economists are bracing for more job losses when the government releases the July employment report Friday.

A BIT OF HOPE?

The barometer: Consumer confidence in the economy edged upward in July, the private research group The Conference Board reported, reversing a six-month slide since January.

The impact: Economists track consumer confidence carefully since consumer spending accounts for two-thirds of all economic activity. Analysts are paying particularly close attention to the mood as stores head into the important back-to-school season, which is the second most important period behind the holiday season.

Reality check: Despite the uptick, consumers' confidence in the economy remains the lowest in nearly 16 years, when the economy was coming out a prolonged recession. And July's index is still about half of what it was a year ago.

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