Feb. 24 (Bloomberg) -- Consumer confidence in the U.S. economy fell the most this month since the start of the Iraq war as Americans became more gloomy about job prospects, a report by a private research group showed.

The New York-based Conference Board's sentiment index for February dropped to 87.3, the lowest since October, from a revised 96.4 in January. The decline was the biggest since a 14- point decrease in February 2003, a month before the start of fighting in Iraq. Optimism about both current and future conditions fell for the first time since September.

``Consumers remain disheartened with current economic conditions, and at the core of their disenchantment is the labor market,'' said Lynn Franco, director of the Conference Board's Consumer Research Center. ``The pace of job creation remains too tepid to generate a sustainable turnaround in consumers' confidence.''

The economy has created jobs at a rate of 73,000 a month since September, a third of the average during the 10-year expansion from 1991 to 2001. Since President George W. Bush took office, employment has declined by 2.3 million jobs.

Bush's approval rate has dropped to a low of 50 percent, with more than half of adults saying they were displeased with his handling of the economy, an ABC-Washington Post poll released last week showed.

Jobs and Incumbent Party

``Jobs are important not just for the overall level of confidence, but they are important for the incumbent party in an election year,'' said Anthony Chan, chief economist at Banc One Investment Advisors in Columbus, Ohio. He had forecast the index would drop to 87.

`` As the realization hits that the job market isn't going to join the party, consumer spending will lag overall economic growth,'' Chan said. ``The refund checks will help salvage a bad situation and make it not as bad. The refunds certainly are going to be an important crutch for a bad situation.''

Tax refunds and lower tax payments will boost household incomes by about $70 billion over the first six months of the year, according to research from economists at Credit Suisse First Boston in New York.

Economists had expected a consumer confidence reading of 92.5 this month, based on the median of 60 forecasts in a Bloomberg News survey, down from January's previously reported reading of 96.8, an 18-month high.

U.S. Treasury notes rose after the report. The Treasury's benchmark 4 1/4 percent note maturing in February 2014 rose almost 1/4 point, pushing the yield down 3 basis points to 4.01 percent at 10:21 a.m. in New York. A basis point is 0.01 percentage point.

Assessment of Jobs

The Conference Board bases its sentiment index on a survey of 5,000 households about general economic conditions, their employment prospects and spending plans.

The component of the index that tracks consumers' expectations for the next six months fell to 96.8 from 107.8. A gauge of optimism about the present situation dropped to 73.1 this month from 79.4 in January.

Consumers' assessment of the job market deteriorated. The percentage who saw jobs as hard to get increased to 32.1 percent from 31.6 percent. The proportion who saw jobs as plentiful declined to 11.8 percent this month, compared with 12.3 percent in January.

Pessimism on Incomes

Today's report also showed households grew more pessimistic about the outlook for jobs and incomes in the next six months. The percentage who thought more jobs would become available slumped to 18.7 from 22 last month. Those who expected incomes to strengthen dropped to 16.7 percent, the lowest since July, from 19.2 percent in January.

The share of consumers planning to buy a home increased to 3.4 percent from 3.3 percent. The percentage planning to buy a major appliance fell to 25.7 percent from 28.4 percent. This month's reading on appliance-purchase plans was the lowest since 24.9 percent in October 1997. Those expecting to buy a car eased to 6.2 percent from 6.4 percent.

At the same time, spending at U.S. retail stores in the week ended Saturday rose 5.6 percent from a year earlier, according to the Instinet Research Redbook weekly sales report, suggesting that the low interest rates and rising home and stock values are offsetting the sluggish job growth.

``We are an early read on what the consumers are actually doing,'' said Terry Lundgren, chief executive of Federated Department Stores Inc., in a telephone interview. Federated, based in Cincinnati, boosted its forecast for February sales at stores open at least a year. ``The consumer is coming back to the store, and she is spending.''

Federated, Wal-Mart

Federated, the owner of Macy's and Bloomingdale's, today forecast that same-store sales this month will rise 7 percent to 8 percent, compared with a previous forecast of a 2 percent to 3 percent increase.

Sagging optimism so far isn't damping sales at Wal-Mart Stores Inc. The world's largest retailer said yesterday that February sales at stores open at least a year are increasing near the high end of its expectations as shoppers bought more spring clothing and food. The Bentonville, Arkansas-based discounter had forecast a gain of as much as 5 percent from the year-earlier month.

``It feels like a solid recovery happening,'' said Leonard Roberts, chief executive of RadioShack Corp., the No. 3 U.S. electronics-store chain, in an interview Thursday. ``Spending is increasing; traffic is up. It bodes well for the retail industry.''

Fort Worth, Texas-based RadioShack said last week fourth- quarter profit rose 9.9 percent and earnings this year will be more than analysts expected.

Greenspan, Debt

Federal Reserve policy makers cited the employment market last month as one reason for holding the benchmark overnight lending rate at 1 percent, the lowest since 1958.

Fed Chairman Alan Greenspan yesterday said consumer debt isn't a threat to the expansion because interest costs have fallen and financial obligations relative to incomes are stable. Greenspan testified today before the Senate Banking Committee on regulation of government sponsored enterprises such as Fannie Mae and Freddie Mac, the two biggest buyers of U.S. mortgage debt, without discussing the economy or monetary policy. He is to speak twice later this week on the U.S. economy.

Total household debt is growing at the fastest pace since 1986, averaging a 10.6 percent annual rate in the first three quarters of last year.

The economy may grow 4.6 percent this year, the strongest pace in two decades, according to the median forecast of 63 economists surveyed this month by Bloomberg News. Consumer spending is projected to rise 3.8 percent after growing 3.1 percent in 2003.

To contact the reporter on this story: Carlos Torres in Washington ctorres2@bloomberg.net.

Last Updated: February 24, 2004 10:56 EST