Consumer confidence index drops in August

Stock market swings, housing problems make American more nervous

updated 3:41 p.m. ET Aug. 28, 2007

NEW YORK - Consumer confidence weakened in August as Americans focused on turbulent financial markets, a decline in home prices and tighter credit standards.

The New York-based Conference Board said Tuesday its Consumer Confidence Index, declined to 105.0 from a revised reading of 111.9 in July, which was still a six-year high.

Although the index was down, it was slightly stronger than the 104.5 that Wall Street analysts expected.

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“A softening in business conditions and labor market conditions has curbed consumers’ confidence this month,” said Lynn Franco, director of The Conference Board Consumer Research Center. “In addition, the volatility in financial markets and continued subprime housing woes may have played a role in dampening consumers’ spirits.”

The survey is closely watched because consumer spending represents two-thirds of the U.S. economy and confidence levels tend to influence spending.

“It was down, but that was widely expected with what’s going on with housing,” said Richard Huber, an economist with A.G. Edwards in St. Louis. “That’s weighing on consumers.”

While lower, the August reading allows Federal Reserve policymakers to take a wait-and-see approach about cutting short-term interest rates, which have held steady at 5.25 percent since June 2006, when the Federal Open Market Committee meets Sept. 18, Huber said.

“It removes their having to cut rates because of a broad-based consumer confidence meltdown,” Huber said.

The Present Situation index, which measures how shoppers feel now about economic conditions, decreased to 130.3 in August from 138.3 in July.