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Confidence down, but brisk holiday spending eases concerns

Busy malls in December are a big reason economists are less concerned about the latest Consumer Confidence Index that fell slightly to 52.5 in December from 54.3 in November. Busy malls in December are a big reason economists are less concerned about the latest Consumer Confidence Index that fell slightly to 52.5 in December from 54.3 in November. (Bebeto Matthews/ Associated Press)
By Anne D’Innocenzio and Janna Herron
Associated Press / December 29, 2010

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NEW YORK — Holiday spending surged this year, but Americans still have their doubts about the economy.

With unemployment high and home prices falling in the nation’s largest cities, consumer confidence took an unexpected turn for the worse in December.

The decline followed two months of rising optimism. Economists say the economic recovery is likely to be less fitful next year.

“The modest drop in the confidence index is not worrisome,’’ said Omair Sharif, economist at RBS Economics Research. “What matters to us — and to the economy — is that consumers are getting out there and spending. We’re looking at the best holiday season for retailers in five years.’’

Busy malls in December are a big reason economists are less concerned about the latest consumer confidence figures. There is also a slew of data that suggest next year will be brighter. Layoffs are slowing, businesses are investing money in computers and equipment, and the stock market has risen to its highest point in two years.

Still, consumers are not quite convinced.

The Conference Board, a private research group, said its Consumer Confidence Index fell to 52.5 in December, down from a revised 54.3 in the November survey. It takes a reading of 90 to indicate a healthy economy. The last time the index was that high was in December 2007, just as the recession began.

Among the 5,000 people surveyed this month, many expressed concerns about jobs. Fewer see them as plentiful. More said they hard to get.

The unemployment rate rose to 9.8 percent in November, and only 39,000 net jobs were created that month.

Chris G. Christopher Jr., senior principal economist at IHS Global Insight, cautioned not to read too much into one report. A downward trend over several months would be more worrisome.

Same goes for the holiday sales data, which showed shoppers spending at the fastest pace since 2006. Key areas such as jewelry, home furnishings, and consumer electronics are still below pre-recession levels. Many retailers offered bargain prices in late October and free shipping to lure buyers back.

Christopher will have a better sense of consumers’ mood when he sees how they spend after the holidays.

“There was a lot of unleashing of pent-up demand,’’ Christopher said. “Things are getting better, but there are still lot of negatives.’’

The biggest may be the decline in home prices in the largest US cities. Every city in the Standard & Poor’s/Case-Shiller 20-city home price index posted a decline from September to October.

Neither the dip in confidence, nor the drop in housing prices, caused economists to back down from their more optimistic outlook for 2011.

Stronger spending by consumers will help the economy grow faster in 2011. Some specialists predict growth will clock in at around 4 percent, which would mark the fastest pace in 11 years.