The Conference Board's consumer confidence index bounced back in August, a reading of consumers' state of mind that contradicts many other recent indications.
The index rose to 105.6 from 103.6 in July, above the 101.5 average forecast of economists polled by
. According to the survey by the private research group, consumers believing that conditions were good outnumbered those believing they were bad by nearly 2-to-1.
Consumers were more upbeat about the labor market, with a majority saying jobs were "plentiful" as opposed to "hard to get," the first time this has happened since October 2001. They also had a bright outlook, with the expectations index rising to 93.7 from 93.2 in July.
According to Bill Dudley, chief economist at Goldman Sachs, the survey shows that an improving job market is outweighing the impact of energy price increases so far.
Nevertheless, the report failed to fuel gains in the stock market. Major stock proxies plunged with traders increasingly nervous about rising oil prices and the extent of the damage inflicted by Hurricane Katrina on oil facilities in the Gulf of Mexico.
Crude oil for October delivery hit yet a new high of $70.90 Tuesday morning before giving back a bit of ground. In recent action, it was trading at $70.55, up $3.55 on the day.
Dow Jones Industrial Average
fell hard, losing 99.03 points, or 0.95%, to 10,364.02. The
was down 9.32 points, or 0.77%, to 1202.96. The
was down 17.52 points, or 0.82%, to 2120.13.
The benchmark 10-year Treasury bond rose 11/32 and its yield fell back to 4.12%.
With crude oil continuing to surge through August, some economists doubted the relevance of the Conference Board's survey, especially in light of contradicting indications.
The University of Michigan's preliminary consumer sentiment index, for one, plunged in August and was well below economists' forecasts. Earlier in the month, when the preliminary reading was made, oil was trading around $66 per barrel. It's now gained another 6%, and gasoline prices have also soared.
And since Wal-Mart warned two weeks ago that its customers were feeling the pinch of surging gasoline prices, a series of retailers have also followed suit.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, says he's inclined to weigh the Michigan survey more heavily than the Conference Board's. "It is not an accident that the only consumer survey index to be included in the index of leading indicators is the Michigan expectations number," he says.
Even if the Conference Board survey accurately portrayed an increase in consumer optimism, "we doubt this can be sustained as the reality of gasoline at $2.60-plus sinks in," Shepherdson says.
In other economic news, the Commerce Department said that factory orders dropped 1.9% in July, after rising the previous two months. The drop was slightly smaller than the 2.0% decline expected on average by economists surveyed by
Factory orders rose 0.9% in June and 4.2% in May. Still, the decline in July was the biggest since April 2004. And for the three months ending in July, growth in factory orders has slowed to 4.7% compared to a yearly gain of 10.5%. "This signals a moderation in the pace of economic growth," says Wachovia chief economist John Silvia.
Core factory orders, which exclude aircraft, fell 4.1% in July after rising 4.9% in June. Inventories increased 0.5%, continuing a trend seen over the past year and a half.
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