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Amid economic gloom, a ray of optimism shines

But analysts warn uptick in confidence may be temporary

The Pennington family of Colorado view a stuffed animal exhibit at Cabela's in Nebraska recently. A Conference Board report says the slight drop in gas prices may have sparked a little hope among consumers. The Pennington family of Colorado view a stuffed animal exhibit at Cabela's in Nebraska recently. A Conference Board report says the slight drop in gas prices may have sparked a little hope among consumers. (Nati Harnik/Associated Press)
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Associated Press / July 30, 2008

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

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

But economists warn 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 yesterday 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 the reading was slightly higher than the revised 51.0 level for June and a bit better than the 50 economists expected. Still, economists 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 believes that the odds of a recession this year have increased, citing the fading benefits of the federal stimulus checks, deteriorating household wealth, and the slowdown of foreign economies.

There was more bad news about housing yesterday. Home prices tumbled by the steepest rate ever in May, according to a closely monitored index. Prices dropped 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.

Stocks, however, rebounded a day after their steep tumble, as investors latched on to a drop in oil prices and the rise in confidence.

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, and analysts worry about whether shoppers will have extra money to spend on clothing and other nonessentials in the important back-to-school season.

The board's Present Situation index, which measures shoppers' current assessment of the economy, was virtually flat at 65.3, compared to 65.4 in June, But the Expectations index, which measures their outlook over the next six months, increased a bit 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," said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement.

She added, however, that while people remain grim about short-term prospects, the modest improvement in their outlook provides some glimmer of hope. The slight improvement in the outlook "bears careful watching over the next few months," she said.

Economists are also keeping watch on the job market, since job security is key to consumers' confidence and willingness to spend. Cautious employers, uncertain about the economy and their own prospects, have cut jobs each month so far this year. Economists are bracing for more job losses when the government releases the employment report for July on Friday.

The consumer confidence report - derived from responses received through July 22 of a representative sample of 5,000 US households - also showed that consumers' worries about business conditions and jobs aren't going away.

Those saying jobs are "hard to get" edged up, while those claiming jobs are "plentiful" declined.

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