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Consumer confidence drops in March - 09:36, 28/3/2007

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Consumers sent up a warning signal in March that rising gas prices, falling home values and a volatile stock market could hurt spending in the coming months, a widely watched index showed on Tuesday.

The New York-based Conference Board said that its Consumer Confidence Index fell to 107.2, down from the revised 111.2 in February. Analysts had expected a reading of 109. The March index was the lowest since November 2006 when the reading was 105.3.

"Apprehension about the short-term future has suddenly cast a cloud over consumers' confidence," said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement.

"The recent turmoil in financial markets coupled with the run-up in gasoline prices may have contributed to consumers' heightened sense of uncertainty and concern. The direction of both components over the next few months bears watching to determine whether this decline is just a bump in the road or something more substantial," she added.

Economists closely monitor consumer confidence because consumer spending accounts for two-thirds of all U.S. economic activity. Confidence had been climbing, helped by consumers' faith in the job market.

The Present Situation Index, which measures how shoppers feel now about economic conditions, increased slightly to 137.6 from 137.1 in February. The Expectations Index, which measures consumers' outlook in the next six months, declined to 86.9 from 93.8.

Joel Naroff, president of Naroff Economic Advisors, said that a one-month dip in consumer confidence after a four-month climb doesn't mean that shoppers are suddenly going to stop spending, but he said it is a "warning sign."

"Everything is consistent on the uncertainty," Naroff said, noting that if consumers are questioning what is going on, they are also going to be questioning their future purchases.

The Conference Board report -- derived from responses through March 21 -- showed increasing anxiety about the stock market and inflation. Those expecting the stock market over the next 12 months to decline increased to 30.7 percent, from 16.7 percent in February. Those expecting the stock market to increase fell to 29.3 percent from 39.9 percent.

Meanwhile, the report also showed that consumers expect the inflation rate on the goods they buy to increase by an average rate of 4.9 percent over the next 12 months, up from 4.6 percent in February. Franco noted that such a spike usually is consistent with an increase in gasoline prices.

The Conference Board report was a bit sobering for retailers and other businesses that rely on consumer spending.

The arrival of warmer weather this month -- following an unusually cold January and February -- has helped the nation's retailers catch up to a slow start to the spring selling season. But a slowing economy, particularly a weakening housing market, could challenge shoppers in the months ahead. Rising defaults and delinquencies in mortgages to people with poor credit histories and fewer home equity withdrawals that give consumers extra cash could curtail spending.

The latest report on housing, released Tuesday by Standard & Poors, further dimmed hopes for a rebound in the market. Prices of single-family homes across the nation depreciated in January compared to a year ago, the weakest results in more than 13 years, according to the S&P housing index.

The data underscored disappointing sales data released by the government on Monday that sales of new homes fell sharply for a second consecutive month in February. It also said that sales of new single family homes fell by 3.9 percent last month to a seasonably adjusted annual rate of 848,000, the slowest sales pace in nearly seven years.

The downbeat news on real estate caused stocks to fall Tuesday as worries mounted that the nation's housing market may be slowing sharply enough to filter through the broader U.S. economy and dampen consumer spending.

In midday trading, the Dow Jones industrial average fell 65.13, or 0.52 percent, to 12,403.94.

Meanwhile, there are concerns about rising gasoline prices. The national average price for gasoline climbed for the eighth straight week, according to a government report released Monday.

Analysts said that consumers have had a mostly optimistic view of the jobs market, providing a counterpoint to worries about gas, homes and stocks.

The Labor Department announced earlier in the month that the unemployment rate dipped to 4.5 percent last month. The economy only added 97,000 new jobs, however, the fewest in two years as bad winter weather forced construction companies to slash jobs.

The report from the Conference Board showed some clouds beginning to form over the job market outlook. Consumers' expecting fewer jobs over the next six months increased to 16.5 percent to 14.2 percent. Those anticipating more jobs to become available declined to 12.7 percent from 13.3 percent. The proportion of consumers expecting their incomes to increase in the months ahead fell to 17.5 percent from 19.2 percent in February.

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