Consumer Sentiment Hits 9-Year Low-Report

A barrage of worries depressed U.S. consumer sentiment to its lowest level in nine years in February, including the imminent threat of war, fear of terror attacks and high unemployment.

Frazzled nerves helped drive down the University of Michigan's final consumer sentiment index reading to 79.9, its lowest since September 1993, from 82.4 in January, market sources told Reuters.

Geopolitical worries, particularly the threat of war in Iraq, have driven uncertainty into a vicious cycle in recent months where businesses are too leery of the future to hire new workers, causing employees to fear for their jobs.

"Consumers are between a rock and hard place," said Sung Won Sohn, chief economist at Wells Fargo Bank in Minneapolis, Minn. "They have been concerned by this jobless economic recovery, the high cost of gasoline and geopolitical uncertainty."

On Tuesday, economists were slapped with a surprising plunge in a separate index of confidence, published by the Conference Board. That gauge plummeted to 64.0 in February from 76.8 in January, the private research firm said.

"The economic and political situation could get worse before it gets better so consumers are bracing for the worse," Sohn said. "We shouldn't expect consumer confidence to improve in the near future."

The Michigan drop was less dramatic, since the final reading was an improvement from a preliminary mid-month level of 79.2. The final report also beat economists' consensus forecast of 78.9.

Analysts are watching indexes of consumer confidence for clues on whether consumer spending, which supports about two-thirds of the U.S. economy, will hold up. So far consumers have kept cash registers ringing despite the slide in confidence but fears persist among economists that spending could eventually peter out.

The current conditions index, which tracks consumers' views about their present financial situation, fell to 95.4 in February from 97.2 in January. It was 95.3 at mid-month. The expectations index, which measures attitudes about the 12 months ahead, sank to 69.9 from 72.8, but was higher than the 68.8 registered in its preliminary February reading.

The University of Michigan consumer sentiment survey is based on telephone interviews with roughly 500 Americans across the country on personal finances and business and buying conditions.

Source: Dow Jones