Jobs needed to stem slide

NEW YORK -- Crumbling consumer confidence and slumping home sales could prove to be a bad combination for retailers and the broader economy going into the holiday shopping season if the labor market contracts further and chokes off spending, economic data showed Tuesday.

But markets took some heart from the warning signs, hoping they would goad the Federal Reserve to lower interest rates more.

Worries about jobs and the economy flared in September, driving a key barometer of consumer sentiment to its lowest level in nearly two years, a private research group said.

The bad news was compounded by a report from the National Association of Realtors that sales of existing homes declined for a sixth straight month in August, pushing activity to the lowest point in five years. And, while the Realtors showed a rise in median home prices, a separate report done by S&P/Case-Shiller said home prices fell in July. Economists said that decline was probably a better reflection of where the market stands now.

Home sales are also down in Illinois, the state's association of Realtors reported Tuesday. The group said home prices rose a bit.

The New York-based Conference Board said its Consumer Confidence Index fell to 99.8, an almost 6-point drop from the revised 105.6 in August. The reading was below the 104.5 that analysts had expected.

It marked its lowest level since a 98.3 reading in November 2005, when gas and oil prices soared after hurricanes Katrina and Rita devastated the Gulf Coast.

"Weaker business conditions combined with a less favorable job market continue to cast a cloud over consumers and heighten their sense of uncertainty and concern," said Lynn Franco, director of The Conference Board Consumer Research Center, in a statement. "Looking ahead, little economic improvement is expected, and with the holiday season around the corner, this is not welcome news."

Economists closely monitor confidence since consumer spending accounts for two-thirds of U.S. economic activity.

Meanwhile, The National Association of Realtors reported Tuesday sales of existing single-family homes dropped 4.3 percent in August, compared to July. Sales at a seasonally adjusted annual rate dropped to 5.5 million units, the slowest pace since August 2002.

The S&P/Case-Shiller report, also released Tuesday, showed the decline in U.S. home prices accelerated nationwide in July, posting the steepest drop in 16 years. The index of 10 U.S. cities fell 4.5 percent in July from a year ago, the biggest drop since July 1991.

Home sales in Illinois for August totaled 14,349, down 17.9 percent from August 2006, according to the Illinois Association of Realtors. Year-to-date sales were down 14.6 percent compared to last year, with 101,737 homes sold January through August.

The Illinois median home sale price in August, according to the Realtors, was $212,500, up 1.2 percent from August 2006. The median is a typical market price where half the homes sold for more, half for less.

For the Chicago area, the median home price was $266,500, up 4.9 percent from August 2006, according to the Realtors. Chicago area home sales totaled 9,736 in August, down 20.1 percent from the same month last year.

Tuesday's reports showing eroding consumer confidence and a further weakening of housing do not bode well for retailers, who are already bracing for a challenging holiday season. Merchants have seen spending slow all year amid falling home prices and higher gas and food bills. Financial turmoil in August and escalating problems in the credit market have made economists and retailers more nervous about the prospects for a decent holiday shopping season.

Such anxiety is further heightened by a weakened outlook for September sales.

The International Council of Shopping Centers on Tuesday trimmed its September same-store sales growth estimates to between 2 percent to 2.5 percent, from the previous 2.5 percent. Same-store sales, a key indicator of a retailer's health, are at stores open at least a year.

Target and Lowe's also both tempered their sales forecasts Monday.

Wall Street chose to interpret Tuesday's data as possible evidence the Fed could use to support a case for more rate cuts. The Dow Jones industrial average rose 19.59, or 0.14 percent, to close at 13,778.65, clawing back from a more than 60-point decline after the opening. Broader stock indicators were mixed.

How well spending holds up hinges on the job market, economists said.

"The question is, do we add jobs?" said Scott Hoyt, director of consumer economics at Moody's Economy.com. "If we do, we should see modest growth in consumer spending."

The Labor department reports its job creation data Oct. 5.