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Consumer Confidence Shaky but Retailer Outlook Bright for Holidays

Consumer confidence plummeted from August to October 2005, according to The Conference Board's Consumer Confidence Index, a monthly consumer survey. Retailers, though, expect an increase in sales for this year's holiday shopping period.

The Conference Board's October index stands at 85.0, down from 87.5 in September and 105.5 in August, a drop of 19% over three months. "Much of the decline in confidence ... can be attributed to the recent hurricanes, pump shock and a weakening labor market," said Lynn Franco, Director of The Conference Board Consumer Research Center.

October 2005 Consumer Confidence IndexFranco said current conditions are higher than they were for the same period in 2004, but short-term expectations are "significantly lower than they were last year."

That pessimism, along with anticipated higher heating bills this winter, may dampen holiday spending, Franco said, unless retailers "lure shoppers with sales and discounts."

Another consumer tracker, The University of Michigan's Surveys of Consumers, reported results similar to The Conference Board. Its Index of Consumer Sentiment declined from 89.1 in August to 76.9 in September, its lowest level in more than 12 years (October data were not available at press time).

"While the economy may not be technically falling into recession, the data indicate that consumer spending will weaken in the months ahead," said Richard T. Curtin, Director of the Surveys of Consumers.

Retailers Optimistic

Contrary to leading economic indicators such as the Consumer Confidence Index, the National Retail Federation (NRF) reported a 6.4% increase in third quarter sales over the same period last year; it expects the increase to continue through the holiday shopping season.

NRF expects total retail sales for 2005 to increase 5.6% over 2004, while it expects retail activity for November and December to increase 5% to $435.3 billion. "Recently, consumer confidence has not been an indicator of consumer spending," said an NRF spokeswoman. "For example, in September consumer confidence hit a two-year low and retail sales for the month rose 7% over last year. It has not been a predictable economic indicator this year."

"While many analysts expected consumers to hold back on spending as a result of higher gas prices, shoppers had other plans," NRF Chief Economist Rosalind Wells said. "This is a good sign for retailers as they head into the holiday season."

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