Confidence sinks to 2-year low

Hurricanes, high gas prices blamed for surprising drop in consumer confidence.
October 25, 2005: 1:24 PM EDT

NEW YORK (CNN/Money) - Consumer confidence posted a surprise drop in October, coming in lower than estimates and falling to a two-year low, the business research group The Conference Board said Tuesday.

The board's consumer confidence index slipped to 85 for the month from a revised 87.5 in September. Economists had expected a slight rise to 88, according to Briefing.com.

"Much of the decline in confidence over the past two months can be attributed to the recent hurricanes, pump shock and a weakening labor market," Lynn Franco, director of The Conference Board's Consumer Research Center, said in a statement.

The number of people claiming business conditions are good decreased to 23.8 percent from 25.2 percent. Those claiming conditions are bad increased to 18.6 percent from 17.8 percent.

People saying jobs are hard to get increased to 25.3 percent from 25.0 percent, while the number claiming jobs are plentiful was nearly unchanged at 20.8 percent.

The last time the index was this low was in October 2003, when it hit 81.7, Franco said.

This month's decline comes after September's 18 percent plunge, as hurricanes and high gas prices caused the biggest fall since October 1990.

Franco said the decline over the last two months could mean a difficult holiday season for retailers, and suggested many stores would have to tout discounts and sales to attract customers.

The Conference Board index has long been considered a good gauge of consumer spending, which drives two-thirds of the U.S. economy.

Some say the number has become less important in recent years, however, as consumers seem to be borrowing and spending more regardless of how much or how little confidence they have in the economy.

The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households. In 1985, the index stood at 100.