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Big Drop in Confidence Fueled by Jobs Pessimism

U.S. consumer confidence in August dropped to the lowest point in two years, the result, analysts say, of the protracted debate over the debt issue and the continuing employment situation.

The 14.7 point drop in The Conference Board’s Consumer Confidence Index is the largest since October 2008, at the very beginning of the recession when banks and investment houses were failing. The Index now stands at 44.5, its lowest level since April 2009.

Among the components that make up the Consumer Confidence Index is the jobs picture. There, 49.1 percent of consumers said jobs are “hard to get,” an increase from July’s 44.8 percent. The percent saying jobs are plentiful declined to 4.7 percent from 5.1 percent.

Asked about job growth, consumers were even more pessimistic. Almost a third of consumers (31.5 percent) expect there to be fewer jobs available in the next few months. Just last month, 22.2 percent expected fewer jobs. Employment optimists — those expecting more jobs in the months ahead — declined to 11.4 from 16.9 percent.

Pessimism is pervasive, The Conference Board found, with 24.6 percent of consumers expecting business conditions to worsen in the next six months, an 8.5 point increase from the July survey. Those expecting business conditions to improve — the glass-half-full group — decreased to 11.8 from 17.9 percent in July.

The Consumer Confidence Index changes monthly, as consumers react to fluctuating economic news and conditions. So it can be a volatile measure of current sentiment. The Board’s Employment Trends Index, which attempts to smooth out spikes, has been declining in the last several months. In July, it stood at 100.6, up 4 percent over July 2010, but down from the post-recession high of 101.8 in March.

Predictions of August’s job growth are also showing a lack of confidence. Bloomberg’s survey of economists says they expect, on average, that the U.S. economy added just 75,000 jobs during the month, with the private sector growing by 105,000. Government job cuts account for the difference. Unemployment held steady at 9.1 percent.

The official Labor Department report for the month will be released early Friday. A preview will be offered tomorrow by payroll processor ADP and its partner Macroeconomic Research. The National Employment Report only sometimes conforms with the government’s report, but it is still closely watched by economists and the investment community. Bloomberg’s survey says the average of economists’ estimates are for the report to show 100,000 private sector new jobs.

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