US consumers losing the urge to shop

Consumer confidence, the urge to shop that drives two-thirds of the world's largest economy, declined in June, writes Conor O'Clery from Wall Street

Confidence among consumers is now at its lowest level since February, adding to uncertainty over the strength of the US economic recovery.

The news contributed to the general gloom in the markets and early gains where quickly eroded.

The Dow Jones industrial average fell 1.67 per cent, to 9,126.82 and the Nasdaq composite dropped 2.49 per cent, to 1,424.01, the lowest finish since the market struck a three-year low on September 21st.

The fall in consumer confidence was blamed on a weak labour market and generally soft business conditions. But waning public confidence in questionable business practices also had an impact, said Ms Lynn Franco, director of research for the New-York-based Conference Board, which publishes the closely-watched monthly index.

The index fell to 106.4 from a revised 110.3 in May, slightly better than the 105.5 forecast by a panel of economists. Despite the decline, confidence still points to continued spending and moderate economic growth, Ms Franco said. Confidence is still much higher than in February, when it sank to 95 as the news was dominated by the Enron scandal.

The data will be closely studied by the policy-making committee of the US Federal Reserve, which began a two-day meeting in Washington yesterday. Observers are unanimous that the Fed will leave rates unchanged at their lowest rate for almost 40 years.

Chairman of the US Federal Reserve Mr Alan Greenspan has said that low inflation allowed the central bankers the luxury of waiting to see how the economic recovery progresses before raising short-term bank lending rates.

Sales of existing homes fell in May but were still the fourth-highest since records began in 1968, due to low mortgage rates.