Consumers shrugged off higher gasoline prices in April and sent a widely watched barometer of consumer confidence to its highest level in almost four years, a private research group said Tuesday.
But the New York-based Conference Board warned that if fuel prices continue to rise, it would cast a pall on consumer spending, which accounts for two-thirds of all U.S. economic activity.
The Conference Board said that its consumer confidence index rose to 109.6, up from a revised 107.5 in March. April’s reading was the highest since the index touched 110.3 in May 2002. Analysts had expected a reading of 106.4.
Confidence has been on an upswing since November in the aftermath of the Gulf hurricanes, except for a sharp dip in February when short-lived pessimism over the labor market soured consumer sentiment.
“Improving present-day conditions continue to boost consumers’ spirits,” said Lynn Franco, director of The Conference Board Consumer Research Center in a statement. “Recent improvements in the labor market have been a major driver behind the rise in confidence in early 2006. Looking ahead, consumers are not as pessimistic as they were last month.”
Franco added, however, that “while prices at the pump have yet to impact confidence, further increases could dampen consumers’ mood.”
The component of the consumer confidence index that measures how consumers feel now about economic conditions rose to 136.2 from 133.3. Another component, which measures consumers’ outlook over the next six months, improved to 91.9 from 90.3 last month.
Tuesday’s upbeat report was an encouraging sign for retailers. Consumer spending perked up in April, following tepid spring sales in February and March.
But it doesn’t mean that the nation’s merchants have a clear road ahead. Job growth has been solid, but Americans are paying more for gasoline, which has risen to around $3 a gallon recently and is expected to increase more during the heavy summer driving season. The Conference Board derived its index from responses received through April 18, which was before gasoline prices surged to new highs.
Meanwhile, the housing market that helped fuel consumer confidence for the past few years is showing signs of cooling off. As housing prices slip, fewer people will be tempted to take cash out of their homes through refinancing and home-equity loans.
The National Association of Realtors reported Tuesday that sales of existing homes edged up a meager 0.3 percent last month to a seasonally adjusted annual rate of 6.92 million units.
The March increase followed a bigger 5.1 percent jump in February with the two months marking the first advances after five consecutive monthly declines.
Stocks fell in early trading Tuesday after both reports showed that the economy may be holding up better than anticipated. Investors are concerned that the Federal Reserve may now have more incentive to raise interest rates beyond the one quarter percentage point increase to 5.0 percent that’s expected in May.
The Conference Board said that consumers’ overall assessment of current conditions remains favorable. Those claiming conditions are “good” rose to 29.7 percent from 27.9 percent. Those claiming conditions are “bad” rose to 15.1 percent from 14.7 percent.
Consumers’ views about current labor market conditions improved. Those saying jobs are “plentiful” increased to 29.1 percent in April from 28.3 percent last month, while those claiming jobs are “hard to get” edged down to 19.6 percent from 20.4 percent.
The outlook for the labor market was mixed, however. Those expecting more jobs to become available in the coming months increased to 15.7 percent from 13.7 percent in March. Those expecting fewer jobs, however, remained unchanged at 16.4 percent.
Patrick Fearon, senior economist at A.G. Edwards & Sons Inc., noted that consumers’ ability to spend ultimately depends on how the labor market fares.
“The labor market still looks good, and that gives us some cushion to handle a softening housing market and rising gasoline prices,” Fearon said. But he warned that higher energy costs could unravel any gains in employment as companies are forced to cut back hiring.