Ahead of the Bell: Consumer Confidence

AP News
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Posted: Nov 24, 2009 7:18 AM

A preliminary report on consumer confidence is expected to hold steady in November compared with October, maintaining a gloomy mood as the traditional start to the holiday season begins Friday.

Economists surveyed by Thomson Reuters predict that the Conference Board's Consumer Confidence Index, due out Tuesday at 10 a.m. EDT, will read 47.7, unchanged with the reading of 47.7 in October, and a long way from what's considered healthy.

The index, which hit a historic low of 25.3 in February, had enjoyed a three-month climb from March through May fueled by signs that the economy might be stabilizing. The road has been bumpier since June as rising unemployment has taken a toll on consumers.

Many economists expect confidence to be stuck at the current levels during the critical holiday shopping season. Most predictions are for holiday spending to be flat at best compared with last year's steep decline.

A reading above 90 means the economy is on solid footing. Above 100 signals strong growth.

Economists watch consumer sentiment because spending on goods and services for consumers accounts for about 70 percent of U.S. economic activity by federal measures. While the reading doesn't always predict short-term spending, it does serve as a barometer of spending levels over time, especially for big-ticket items.

Retail sales showed some signs of life in September and October, with major merchants collectively posting two consecutive monthly gains in sales in more than a year, according to the International Council of Shopping Centers-Goldman Sachs Index. That followed more than a year of declines as shoppers shut their wallets tight. But business still remains weak and shoppers are still focused on necessities like socks and underwear.

Experts say persistent depressed spending are likely to remain for several years amid stubbornly high unemployment. The unemployment rate is now at 10.2 percent, the highest in 26 years, and 15.7 million Americans out of work. Moreover, last week's economic data showing a drop in housing starts and a jump in mortgage delinquencies, renewing worries that an economic recovery will be slow and bumpy.

With holiday sales accounting for up to 40 percent of many retailer's annual sales, economists are closely watching consumers' behavior patterns to see whether they buy small-ticket items, stick to only deeply discounted merchandise and pay with cash or debit cards rather than credit.

Such habits were evident last Christmas, but many consumer surveys point to shoppers cutting back even more this season.

A recent survey conducted by AlixPartners found that 88 percent of about 3,500 consumers polled said that they plan to spend the same or less than they did compared with a year ago.

A survey released Monday of 5,000 U.S. households conducted by The Conference Board revealed that families plan to spend $390 on Christmas gifts this season, down from last year's $418.

The good news is that stores are heading into the holidays with much leaner inventories as compared to a year ago, as they try to keep to planned promotions and boost profit margins. A year ago, store were holding clearance sales even before Thanksgiving weekend to liquidate merchandise following a sudden halt in consumer spending.