Consumer confidence fell in October for the third month in a row and is now at the lowest since just after Hurricane Katrina in 2005, as Americans fret about business conditions and their job prospects, a private group said Tuesday.
A second report Tuesday provided evidence for the declining optimism by outlining the biggest fall in home prices in more than 15 years in August.
The reports illustrate some of the challenges facing the Federal Reserve as it winds up a two-day meeting today, announcing whether it will cut its target for short-term interest rates for the second time in two months. The policymaking Federal Open Market Committee sliced a key interest rate by a half-percentage point to 4.75% in mid-September, faced with turbulent conditions in credit markets and a worsening housing slump.
Since the Fed move, credit markets have improved but are still unsettled. The housing market has continued to slide, leading to concerns that falling home prices and construction could pull down the broader economy. Even as growth slows, however, oil prices hit a record Monday on world markets.
Economists are split on what the Fed should do. Some consulting firms, including Moody's Economy.com, say there is more than enough economic bad news to justify another Fed rate cut. Others, such as Action Economics, say that while the economy is slowing, it's not imploding. Despite consumer concerns, for instance, unemployment is just 4.7%. "The data do not bear out the negative view of the economy," says Mike Englund of Action Economics.
The New York-based Conference Board said its consumer confidence index, based on a survey of 5,000 households through Oct. 23, fell to 95.6, from 99.5 in September.
"Consumers are growing more pessimistic about the short-term future, and their rather bleak outlook suggests a less-than-stellar ending to this year," says Lynn Franco, director of The Conference Board Consumer Research Center.
The slice of consumers calling conditions "good" fell to 23.4% from 25.7%. Consumers were less optimistic about the job market, with a slight pickup in those calling jobs hard to get.
Also Tuesday, the Standard & Poor's/Case-Shiller index of 10 major cities found a 5% annual dip in home prices in August. "The fall in home prices is showing no real signs of a slowdown or turnaround," says Robert Shiller, chief economist at MacroMarkets and one of the developers of the index.