Holiday shopping outlook is less bright

With Christmas only about eight weeks away, shoppers are feeling more forlorn about the economy than they have since hurricanes Katrina and Rita battered the Gulf Coast two years ago.

The Conference Board said Tuesday that its consumer confidence index fell to 95.6 from a revised 99.5 in September. It was the lowest reading since 85.2 in October 2005, when gas and oil prices soared after the hurricanes deluged New Orleans and shut down a large chunk of the nation’s oil refineries. Analysts had expected a reading of 99.5 on Tuesday.

For retailers, the consumer confidence report, which showed its third monthly decline in a row, heightens worries that the holiday shopping season will be challenging after a disappointing fall. For investors, it raised concerns that consumers’ growing wariness was another sign that the economy may be slowing too much. Consumer spending accounts for two-thirds of U.S. economic activity.

Souring confidence is “certainly not what retailers want to see going into the holiday season,” Wachovia Corp. economist Mark Vitner said. He added that shoppers had more hurdles going into the season than even two years ago.

The present situation index, which measures how people feel now about the economy, declined to 118.8 in October from 121.2 in the previous month. The expectations index, which measures shoppers’ outlook over the next six months, declined to 80.1 from 85.

Consumers are contending with a slew of problems: higher food and gas prices, a deepening housing slump and tighter credit among them.

A report on U.S. home prices Tuesday offered little hope that housing prices would recover soon. According to the S&P;/Case-Shiller index, U.S. home prices fell nationwide in August for the eighth consecutive month.

And although the Federal Reserve is expected to cut interest rates today to soften the effect of the housing woes on the economy, analysts say the move is probably too late for the holiday season, which accounts for up to 40% of retailers’ annual revenue.

“Further weakening in business conditions has, yet again, tempered consumers’ assessment of current-day conditions and may very well be a prelude to lackluster job growth in the months ahead,” said Lynn Franco, director of the Conference Board Consumer Research Center. “In addition, consumers are growing more pessimistic about the short-term future, and their rather bleak outlook suggests a less-than-stellar ending to this year.”

For those who watch the economy, the big concern is that a slowing housing market and rising fuel prices will undermine what has been until now a healthy job market, Vitner said. The Labor Department is expected to show an increase of 80,000 jobs in October when it releases its monthly report Friday.

Vitner noted that already layoffs are starting to rise. The Consumer Confidence report -- derived from responses through Oct. 23 -- showed a weakening of confidence in the job market.

Those saying jobs are “hard to get” increased to 22.6% from 22.4% in September. Those claiming jobs are “plentiful” decreased to 24.1% from 25.6%.

The outlook for the labor market was also less optimistic. The percentage of people expecting more jobs in the months ahead was unchanged at 13.5, but those anticipating fewer jobs increased to 20.1% from 18.7%.