Consumer Confidence Falls to Lowest Level in More Than a Year

New data released Tuesday showed that consumer confidence fell in November to its lowest level in more than a year, while orders for durable goods in October dropped to the lowest level in six months -- further indications that the economy is starting to slow down.

The Conference Board reported that the consumer confidence index fell to 133.5 in November, down slightly from 135.8 in October, but a sharp drop from the record high of 144.7 reported in May. The drop came as a surprise to analysts surveyed by Thomson IFR, a financial research firm, who had expected the index to rise to 138 this month.

Sophia Koropeckyj, an analyst at Economy.com, attributed the drop in consumers' confidence to the recent volatility in the stock market, a slowdown in manufacturing activity and softer labor market conditions. In the survey, consumers said current conditions remain favorable, with that component of the index rising to the highest level in three months. However, consumer's expectations for future conditions fell to the lowest level since early last year.

Meanwhile, the Commerce Department reported that a drop in demand for aircraft equipment and electronic parts sent orders for durable goods down 5.5% in October, the biggest decline in three months.

Orders for durable goods, defined as big-ticket items like industrial machinery that are meant to last three years or longer, fell to about $209 billion last month. Analysts say the decline in orders was the sharpest since July, but the actual number of bookings was the lowest since April. Analysts surveyed by Thomson IFR had expected a much smaller decline of 2.1%.

Two-thirds of the overall decline resulted from a drop in orders for airplanes and aircraft equipment. Orders for electronic and electrical components also fell sharply, giving back all the gains of the previous month. Meanwhile, the number of industrial equipment orders grew.

Computer equipment comprised more than one-third of the dollar volume of the industrial machinery orders in October. Still, analysts warn that while computer chip demand continues to grow, supply has grown faster, pushing prices down. At the same time, demand for PCs and PC-related components seems to be slipping. Revised durable goods data, which provides more details on durable goods due out next week, should provide further insight, detailing orders for sub-components like computer equipment.

Despite the slight increase in industrial equipment orders last month, the overall decline in durable goods orders -- combined with the unexpected drop in consumer confidence this month -- is seen by analysts as further evidence that the economy has begun to slow after the Federal Reserve Board's half-dozen interest rate increases since the summer of 1999.

The Federal Reserve left the benchmark borrowing rate unchanged at 6.5% at its Nov. 15 meeting. The board next meets on Dec. 19 and is not expected to raise rates at that time.