Waning consumer confidence could hit holiday spending

WASHINGTON U.S. consumers' confidence in the economy fell in November to the lowest level in seven months, dragged down by greater concerns about hiring and pay in the coming months.

The Conference Board said Tuesday that its index of consumer confidence dropped to 70.4 from 72.4 in October. The October reading was higher than initially reported, but still well below the 80.2 reading in September.

Confidence plunged in October on worries about the impact of the 16-day government shutdown. The November decline, however, was mostly due to concerns about the next six months. Less optimism among Americans could slow the holiday shopping season and weigh on economic growth.

"This is a bad report," said Chris Christopher Jr., director of consumer economics with IHS Global Insight, in a note to clients. "We expect holiday sales to be relatively modest this year."

The research firm forecasts holiday retail sales to rise 3.2 percent from the year-ago period, which would be the weakest growth since 2009. IHS expects consumer sentiment to rebound in December and next year as the impact of October's government shutdown fades.

Consumer spending drives 70 percent of economic activity. But spending patterns don't always closely follow measures of confidence. Americans sometimes shop more even when they say they are less optimistic. That's what happened last month. Despite a sharp fall in confidence in October, consumers spent 0.4 percent more at retail stores and restaurants than in September. Strong auto sales accounted for about half the gain. Restaurants also reported a healthy increase in spending. Americans also spent more on furniture, electronics and clothing.

There were some signs of caution: sales at grocery stores were flat and department stores reported only slightly higher sales. Lower gas prices and a recent pickup in job gains could help maintain Americans' ability to spend, even as their confidence wanes.

Employers added an average of 202,000 jobs from August through October, up from just 146,000 in the previous three months. And lower gas prices have put more money in consumers' pockets. Prices fell for nine straight weeks to the lowest level in nearly two years before moving up slightly in the past two week. The average price for a gallon (3.8 liters) of gas nationwide Monday was $3.28.

Economic growth is expected to slow in the current October-December quarter, partly because consumer spending growth is likely to be moderate.

"Overall, the decline in consumer confidence is a little disconcerting," said economist Amna Asaf of Capital Economics in a research note. "But confidence hasn't been a very good indicator of consumption growth in recent years and, besides, the improving fundamentals suggest that confidence should rebound soon."

The economy expanded at a 2.8 percent annual rate in the July-September quarter, but most economists expect it will slow to about a 2 percent rate or lower in the fourth quarter.