NEW YORK - U.S. consumer confidence sank in August while Chicago-area business activity slowed, according to reports on Tuesday that added to worries the economy's patch of sluggish growth may last beyond the summer.
A four-month slowdown in hiring and record oil prices took a bite out of confidence, with the Conference Board's monthly index falling more than 7 points in August to 98.2 from a revised 105.7 in July. The reading was well below economists forecasts of a smaller slip to 103.5.
"A re-acceleration in hiring is needed to bolster consumer attitudes about the economy. More jobs will also generate faster income growth that will support consumer spending," said Steven Wood, chief economist at Insight Economics in Danville, California. "A lot is riding on companies hiring more workers."
Consumer hopes soured on both the current state of the economy and the outlook, with the present situation index sliding to 100.7 in August from 106.4 the prior month. The expectations index also fell sharply, to 96.6 from 105.3.
A separate report showed growth at Midwest businesses easing in August, with the National Association of Purchasing Management-Chicago's index falling to 57.3 in August from 64.7, deeper than the retreat to 60.8 economists had forecast.
The worsening data cast new doubts on the pace of growth ahead. With income gains stagnating, more economists are beginning to question the outlook for consumer spending, which powers two-thirds of the economy. Even as spending rebounded in July, it was fueled by sparse savings or credit rather than income.
Stock indexes initially slipped and the dollar slid as the data cast more doubt on the economy's strength, while Treasury prices rose and pushed the 10-year yield to a five-month low. By the end of the day, the S&P 500 recovered and gained half a percent.
Even with the signs of growth slipping below the economy's full speed and dampening hiring, Federal Reserve officials have said they intend to keep hiking interest rates steadily at coming meetings because they view the current 1.50 percent federal funds rate as too accommodative.
While the bond market sees the Fed taking its official rate for overnight bank lending up to 2 percent by the end of the year, it has cut back on anticipated rate hikes in 2005. The Fed's next meeting is on Sept. 21.
Many economists believe that stronger employment growth is needed for the central bank to keep hiking rates. Friday's August employment report is expected to show a 160,000 gain in non-farm payrolls, up from July's meager 32,000 increase.
MODERATING REGIONAL GROWTH
The NAPM-Chicago index still represented historically strong activity, and economists said some moderation was expected given the sharp run-up in energy prices. Crude oil hit nearly $50 a barrel less than two weeks ago before pulling back to around $42.
The Chicago prices index jumped to a 16-year high of 86.6 from 77.6 in July, and economists said the big spike represented not just higher energy costs but price pressures from other commodities, like metals.
The components of the NAPM-Chicago may point to even less growth ahead. Even as the employment index showed better hiring, indexes of production, new orders and backlog orders all fell. That suggests less production will be needed in the future to meet demand.
Stephen Stanley, chief economist at RBS Greenwich Capital, said the underlying Chicago indexes "were still healthy and probably more reasonable and sustainable."
Another survey of purchasing managers, this time in New York, showed overall business conditions improving in August, even as both manufacturing and services activity pulled back. The headline NAPM-New York business conditions index rose to 307.1 from 302.5 the prior month.
Email This Page!