Confidence at low ebb among US consumers

Previous wars have helped stimulate the economy of the United States, but the attacks on America's financial and military centres and the uncertainty about how its anti-terrorist war will be played out at home and abroad has sapped consumers' urge to spend, making recovery more difficult.

This was underlined yesterday when the Conference Board reported that its consumer-confidence index tumbled to 97.6 from a revised 114 in August, the largest monthly drop since October 1990. Its expectations index also tumbled to 79.2 in September from 93.7 the prior month, while its present-situation index fell to 125.2 from 144.5.

Based on a monthly survey of some 5,000 US households, the index is closely watched as consumer spending accounts for about two-thirds of the nation's economic activity. Its relates its findings to its base year, 1985, when it stood at 100.

The fall in confidence along with persistent worries about the economy halted a tentative early-morning rally on Wall Street, and stocks slipped back into negative territory in mid-afternoon trading on a see-saw day.

The Dow Jones industrial average rose 56.11 points, or 0.65 per cent, to 8,659.97, adding to Monday's gain of more than 4 percent. The broader Standard & Poor's 500 Index ticked up 8.83 points, or 0.88 per cent, to 1,012.28. The technology-laced Nasdaq Composite Index barely made it into positive territory, rising 2.23 points, or 0.15 per cent, to 1,501.63, after vaulting more than 5 per cent higher in the previous session.

After its worst week since the 1930s, the Dow had fought back on Monday with its fifth-best one day rise but persistent worries kept buyers from plunging back in to the market.

The agri-tech company ADM became the latest firm to announce lay-offs yesterday, saying 2,300 jobs would go because of the deteriiorating economic climate. Some 100,000 jobs are to be axed in the airline industry because of the new fear of flying among Americans.

The findings of the Conference Board on employment prospects indicate that confidence is set to fall further. It reported that the percentage of consumers claiming jobs were hard to get rose from 16 to 18.5 per cent in September.

"As the economic ramifications of September 11th continue to reverberate in the coming weeks and months, and the number of layoffs continue to rise, the economy faces tougher times ahead," said Ms Lynn Franco, director of the Conference Board's Consumer Research Center. "While consumers have managed to keep the US out of a recession for several years now, that soon may no longer be the case."

The National Association of Realtors also said that home sales are expected to fall-off because of the attacks, reversing a trend which sent home sales to a record 5.5 million annual rate in August.

"We are in a recessionary environment. Our financial system is under increased pressure and scrutiny," said Mr David Lereah, the association's chief economist. Shares of AOL Time Warner, the world's largest Internet and media company, rose again yesterday, adding to a 9 per cent gain on Monday, despite a warning that 2001 cash earnings and revenue would grow at a slower rate than expected, something which Wall Street had apparently already factored in.