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Confidence Plunge Could Help Trigger U.S. Rate Cut

By John S. McClenahen Economists expected the Conference Board's consumer confidence index for October to fall to 90 (1985=100) from its 93.3 mark in September. The index did more than fall; it plunged to 79.4, its lowest level since 1993, from a revised September figure of 93.7. "A weak labor market, the threat of military action in Iraq and a prolonged decline in the financial markets have clearly dampened both consumers' confidence and their expectations for the near future," says Lynn Franco, director of the New York-based Conference Board's research center. "The outlook for the holiday retail season is now relatively bleak. Without the likelihood of a pickup in consumer spending, an already weak economic recovery could weaken further." The question now is whether the dramatic decline is by itself reason enough for the Federal Open Market Committee (FOMC), the U.S. Federal Reserve System's policy-making group, to cut short-term U.S. interest rates for the first time this year. The influential federal funds rate has been at 1.75% since last December. The FOMC's next scheduled meeting is Nov. 6. The case for a cut could be strengthened or weakened on Friday of this week. On Nov. 1, the Institute for Supply Management is slated to release its manufacturing index for October. Economists generally expect about a one-percentage point decline to 48.8%. Also on Nov. 1, the U.S. Labor Department is scheduled to release October employment data. Economists expect the numbers to show little or no job growth and a two-tenths of a percentage point rise in the U.S. unemployment rate to 5.8%.

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