By Harvard Zhang

Consumer confidence dropped in February to a seven-month low as Americans — despite a growing economy — grew more concerned about business conditions, the labor market and their pocketbooks.

The Conference Board’s index declined in February to 92.2 from a revised 97.8 a month earlier, the New York City-based independent research group reported Tuesday. The reading was significantly lower than the median forecast of 97.2 economists surveyed by Bloomberg LP had been expecting.

Both the “current-condition” and the forward-looking “expectations” indices in February decreased, showing consumers’ waning optimism about economic conditions and their financial situation now and in the near future.

“Equity prices were weak and GDP growth slowed in the fourth quarter last year, these indicators had an impact on consumers’ confidence. And growth in labor and employment slowed but still grew at a healthy pace,” said Lewis Alexander, New York City-based Chief U.S. Economist at Nomura Securities Company Ltd.

“A decreasing consumer confidence is not a good thing, but it’s a warning sign,” he added.

In interviews Tuesday, Chicago-area residents echoed the less-rosy national sentiment as they experienced property tax hike and the highest sales tax among major cities in the U.S.

“I’m not moving out of the city but I’m definitely not buying another home in Cook County,” said Joe Dolph, 44, an IT infrastructure manager who was shopping at a downtown Chicago Target store. “Grocery costs have been going up as well. Everything is just more expensive.”

Gloomier current conditions

The Present Situation Index fell to 112.1 in February from 116.6 last month as U.S. consumers grew more worried about general economy and employment. Many experts suggested that, despite the turbulent capital markets, economic expansion will continue.

“Continued turmoil in the financial markets may be rattling consumers, but their assessment of current conditions suggests the economy will continue to expand at a moderate pace in the near term,” said Lynn Franco, Director of Economic Indicators at The Conference Board.

Yet the fraction of the survey group saying business conditions were “good” decreased to 26.0 percent from 27.7 percent a month ago while those saying business conditions were “bad” increased to 19.8 percent from 18.8 percent.

Americans also suggested a less positive labor market even though unemployment rate fell to its lowest level of 4.9 percent in January in eight years. Many people were concerned about the pay level of new jobs.

“The immigrants from Mexico and Central America I work with are getting jobs but they are low-paid jobs,” said Francesca McGarry, 90, who taught English at Julia Center, a neighborhood outreach organization in West Town, Chicago. “They are really intelligent people, but they need the education and language skills to get better jobs.”

Deteriorating expectations

Consumers were more pessimistic about the short-term outlook than in January as they foresaw less favorable business conditions, fewer jobs and a greater possibility of salary cuts.

Consumer expectations of where inflation will be in 12 months (a projection that is consistently much higher than the actual inflation rate) fell to the lowest level of 4.7 percent since February 2007, which was “sure to receive attention inside the Federal Reserve,” according to a research paper by JPMorgan Chase & Co. Inflation rate stood at 1.4 percent in January, yet to achieve the Fed’s target of 2 percent.

The fraction of consumers expecting an uptick in interest rates in the next 12 months decreased to 61 percent from 72.6 percent a month ago, while 38 percent of surveyees see a decrease in stock prices comparing with 35.8 percent in January. The Dow Jones Industrial Average has dropped 5.7 percent year to date with tumbling oil prices, a troublesome banking sector and worries surrounding a slowdown in China’s economy.

The percentage of consumers expecting to buy new cars in the next six months edged up to 12.3 percent from 12.1 percent a month earlier, while fewer Americans thought it was a good time to purchase new homes or major appliances including refrigerators and TV sets.

Illinois pessimism

The state of Illinois reported the most downbeat consumer sentiment of 43.3 in more than three years. The state government projected Illinois to have a 4.37 billion deficit on June 30 that could be imposed ultimately on taxpayers without fundamental reforms and spending cuts.

Consumers in Chicago endure the highest sales tax of 10.25 percent among all major cities, and homeowners were expected to pay $543 million more at the end of 2018 following a property tax hike last year.

“Price here in Chicago is just horrendous,” said McGarry, who was shopping at a downtown Chicago Target store. “We need systematic changes to give a fair share to the poor and the marginalized, and tax to the hilt the millionaires and billionaires in this country.”