Consumer Mood Sours Confidence In Economic Future Dropped Sharply In June

Consumer faith in the economy plunged in June, suffering the biggest monthly fall in three years, a widely followed survey released Tuesday found.

Although remaining relatively high, the Conference Board confidence index showed a third straight decline, reflecting a general view that the economy has weakened.

Still, economists, some of whom found the extent of the drop in confidence somewhat surprising, predicted the Federal Reserve wouldn’t lower interest rates anytime soon even though financial markets anticipate such a move.

Stock prices rose after the report’s release, but the Dow Jones industrial average ended the day off 8.64. Bond prices initially jumped higher, then fell back by late Tuesday.

“There’s no doubt that the economy has slowed down. (But) we think the underlying fundamentals support continuing growth,” said Daniel Seto, a vice president and economist for Nikko Securities Co. International. He suggested the economy was in a transition.

The Conference Board’s consumer confidence index, which was calculated from a nationwide survey of 5,000 households, plunged 9.2 points this month to 92.8, the biggest monthly decline since a 10.4-point drop in June 1992.

The index stood at 101.4 at the start of the year and at 92.5 in June 1994.

Fabian Linden, executive director of the businessresearch group, said the level of consumer confidence remained relatively high historically, though “the magnitude of the (recent) decline is somewhat disconcerting.”

The latest survey results said respondents were markedly less optimistic about both current economic conditions and their expectations for the immediate months ahead.

Survey participants were also less positive about current business conditions, with fewer believing jobs were plentiful in June. Fewer expected more job opportunities to arise in the next six months and for their financial condition to improve.

William V. Sullivan Jr., a senior vice president and director of money market research for Dean Witter Reynolds Inc., said he was surprised by the latest survey results.

“No one had expected this sharp deterioration in confidence, partly since this erosion is in direct odds with other surveys that are widely available,” he said.

Sullivan noted, for example, a smaller poll by the University of Michigan that recently indicated consumer spirits were high.

“I think the vast width of evidence is in favor of the notion the economy is achieving a soft landing, but no evidence of a recession here,” he said.

Nikko’s Seto agreed: “We have none of the excesses that typically accompany a recession - excess consumer debt, inefficient corporate structure, real estate and banking problems.

“Fundamentally, there’s not enough justification for any Fed easing right now.”

The central bank has tightened credit seven times since February 1994 as part of an effort to slow the economy and thwart inflation.