Credit Commentary

U.S. consumer confidence plunges in February

By Zarana on Wednesday, February 24 2010

Consumer confidence fell sharply in February as Americans turned more pessimistic about job prospects and the U.S. economy which raise concerns about the outlook for consumer spending. Very few consumers are anticipating an improvement in business conditions and the job market over the next six months. Consumers also remain extremely pessimistic about their income prospects.

The sharp drop in February, which follows three straight monthly gains, reflects a more worrisome outlook by consumers about the current economic recovery. Just a month after touching a 16-month high, Consumer Confidence index sank 11 points to 46.0 from an upwardly revised 56.5 in January. Analysts were expecting only a slight decrease to 55. It was the lowest level since the index recorded a 40.8 reading in April 2009. As a result, the present situation index plunged to its lowest level in 27 years to 19.4 from an upwardly revised 25.2. The percentage of consumers who said economic conditions are good dropped to 6.2% from 8.5%, while those who say conditions are bad climbed to 46.3% from 44.7%.

The expectations index, meanwhile, fell to 63.8 from downwardly revised 75.9.

The percentage who says jobs are plentiful dipped to 3.6%, while the percentage saying jobs are hard to get edged up to 47.7%. February U.S. unemployment rate fell to 9.7% from 10%, but the economy actually lost 20,000 nonfarm jobs. Economists are uncertain about when or how fast job growth will accelerate.

The February reading is a long way from what's considered healthy: A reading above 90 means the economy is on solid footing. Index above 100 signals strong growth.

Consumer Spending

The national Consumer Confidence numbers are a reflection that the consumers may be feeling increasingly pessimistic. The plunge in index for February raises concern on consumer spending for coming months. Consumer spending accounts for about 70% of U.S. economic activity. Some economists say that the Consumer spending would disappoint throughout most of the year

However, some of the nation’s biggest merchants reported mostly better fourth-quarter profits this week. Target Corp.’s profit climbed almost 53 percent, to $936 million, thanks to carefully controlled inventory selection and strong holiday sales. Whereas, Sears earned $430 million during the fourth quarter. That’s up from a profit of $190 million, or $1.55 a share, during the same period last year.

Macy’s quarterly adjusted profit of $1.40 a share beat Wall Street’s $1.32-per-share estimate. These estimates nomally take out one-time items. Full-year adjusted earnings were $1.41 a share, while annual sales fell 6 percent to $23.49 billion.

Home Depot reported a profit of $342 million, or 20 cents per share, reversing a loss last year.