Despite impressive gains in U.S. stock markets, consumers continue to exhibit a wait-and-see stance toward the country's economy. Consumer confidence unexpectedly plunged in October to 47.7 from 53.4 in September, The Conference Board announced Tuesday, led by citizens' concern about jobs.

A Bloomberg News survey of economists had expected the index to rise to 54.0 in October from a revised 53.4 in September. It totaled 54.5 in August, 47.4 in July, and 44.8 in June. The index hit a record low of 25.3 in February. (Base year, 1985=100.)

Also, the present-situation index declined to 20.7 in October from 23.0 in September, and is now at its lowest level in 26 years.

Lynn Franco, director of The Conference Board's Consumer Research Center, said labor market conditions played a large role in the October's index drop. "The short-term outlook has also grown more negative, as a greater proportion of consumers anticipate business and labor market conditions will worsen in the months ahead," Franco said in a statement. "Consumers also remain quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays."

In October, those saying jobs are "hard to get" increased to 49.6 percent from 47.0 percent in September, while those claiming jobs are "plentiful" decreased to 3.4 percent from 3.6 percent.

Further, consumers' assessment of current conditions worsened in October. Those claiming business conditions are "bad" increased to 47.1 percent from 46.3 percent in September, while those claiming business conditions are "good" decreased to 7.7 percent from 8.6 percent.

In addition, the board said consumers' short-term expectations were more pessimistic as well. Consumers expecting business conditions to improve over the next six months decreased to 20.8 percent in October from 21.3 percent in September, while those expecting conditions to worsen increased to 18.3 percent from 14.6 percent.

Investors should pay attention to the Consumer Confidence Index because, historically, consumer spending has accounted for about 60 percent to 65 percent of U.S. GDP. Moreover, rises in consumer confidence are directly correlated with increases in consumer spending. Hence, if confidence rises, and a trend forms, that most likely means good things are ahead for corporate revenue and earnings.

The Consumer Confidence Index is based on a representative sample of 5,000 households.

Economic Analysis: The October reading is a definite disappointment. Clearly, consumers are still concerned about the high U.S. unemployment rate and the overall job market. However, one would expect consumer confidence to resume its upward trek in the months ahead, if job losses continue to subside and net monthly job gains resume. In a nutshell, stock market gains and signs of stabilization in the housing sector aren't enough to sustain consumer confidence: Americans will need to see tangible signs of sustained job gains, with rising, real incomes, to get consumer confidence headed in the right direction.


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