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The Honolulu Advertiser
Posted on: Wednesday, September 28, 2005

Consumer confidence, new-home sales plunge

By Anne D'Innocenzio
Associated Press

NEW YORK — Consumer confidence suffered its biggest drop in 15 years in September as Hurricane Katrina made Americans anxious about the rising costs of heating their homes and filling their gas tanks. The decline raised questions about consumer spending for the rest of this year, including the holiday shopping season.

Meanwhile, the government reported yesterday that new-home sales plunged in August by the largest amount in nine months, continuing a string of mixed signals about the health of the housing boom.

The Conference Board said its Consumer Confidence Index, compiled from a survey of U.S. households, dropped 18.9 points to 86.6 from a revised reading of 105.5 in August.

That marked the biggest slide since October 1990, when the index fell 23 points to 62.6 amid the onset of the recession, the buildup to the first Gulf War and a spike in gasoline prices. The September reading was also the lowest level since October 2003, when it registered 81.7.

Analysts had expected the September reading to be 98.

Wall Street took the news of both reports fairly well. The Dow Jones industrial average, up about 30 points before the index was released, finished 12 points higher yesterday.

The Commerce Department said new home sales fell 9.9 percent last month to a seasonally adjusted annual rate of 1.24 million units. Even with the slowdown, the median sales price rose 2.5 percent from July's level to $220,300. The bigger-than-projected drop in new-home sales could signal that the nation's red-hot housing market is starting to slow down, but reports so far are mixed.

In Washington, Republicans were assessing the political impact of the numbers, particularly the drop in consumer confidence, saying it gives them more reason to worry about next year's elections.

"These are serious numbers," said Rep. Tom Cole, R-Okla., a political operative-turned-congressman, referring to the consumer confidence figures. "The question is whether this is a trend or a reaction to Katrina and Rita."

Even before Katrina slammed into the Gulf Coast on Aug. 29, consumers were struggling to fit higher gasoline prices into their budgets, with that strain showing up in August's modest retail sales gains. Sales have been disappointing again this month, and analysts are concerned that consumers will further retrench when they start paying home heating bills.

Consumer spending accounts for two-thirds of all U.S. economic activity.

"If we don't get some relief, it looks like it will be a very weak holiday season," said Gary Thayer, chief economist at A.G. Edwards & Sons.