Plentiful jobs raise consumer confidence

WASHINGTON — An abundance of jobs helped push consumer confidence higher this month, but the optimism could be short-lived as pain at the gasoline pump becomes more acute.

Soaring energy prices may also be starting to harm manufacturers, as the Commerce Department reported Tuesday that factory orders in July fell by the largest amount in 15 months.

Energy costs, already at record levels, are being driven even higher following Hurricane Katrina's devastating strike along the Gulf Coast, which has shut down oil rigs and petroleum refineries. Oil prices hit another closing record of $69.81 per barrel on Tuesday after setting an intraday trading high above $70 per barrel.

The concern is that surging energy costs will at some point cause consumer confidence to falter, resulting in a cutback in consumer spending, which accounts for two-thirds of total economic activity.

However, the Conference Board reported Tuesday that consumers remained optimistic in August despite the surge in energy costs. The board's index rose to 105.6, up from a revised 103.6 in July.

Analysts said that strong job growth was so far offsetting the surge in energy costs.

"It may be hot and energy prices may be scorching consumers, but as long as jobs are available, people seem to be happy," said Joel Naroff, head of Naroff Economic Advisors, a Holland, Pa., forecasting firm.

Naroff and other economists said it was an open question how long the economy can stand up to a relentless rise in energy prices that has socked motorists during the summer driving season. It is expected to do further damage with winter heating bills.

"Because the economy is strong and job growth is strong, the consumer has not felt much pain, but that is likely to change in the next few months," said Nariman Behravesh, chief economist at Global Insight, an economic consulting firm in Lexington, Mass. "I think we are headed for a period of economic weakness mostly related to the oil situation."

Worries about what Katrina and surging energy prices will do to the economy sent stocks lower Tuesday. The Dow Jones industrial average fell 50.23 points to close at 10,412.82.

While economists believe the economy is powering ahead at a rate above 4 percent in the current July-September quarter, Behravesh said that could slow dramatically to around 2.5 percent in the final three months of this year, reflecting the drag from higher energy costs.