Soaring gas prices and weaker job prospects made Americans gloomier about the economy in April, sending a widely watched measure of consumer sentiment to a five-year low, a private research group said Tuesday.
The New York-based Conference Board said that its Consumer Confidence Index, which had plummeted in March, fell again to 62.3 in April, down from the revised 65.9 last month and 76.4 in February. The number was in line with the consensus estimate of 62 from Wall Street economists surveyed by Thomson/IFR, but the index remains at its weakest point since March 2003, when it registered 61.4, ahead of the U.S. invasion of Iraq.
“This continued weakening suggests that not only has the feeble level of growth in the first quarter spilled over into the second quarter, but the economic conditions may have slowed even further,” Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement. “And not only are lackluster business and job conditions eroding confidence, but rising gasoline prices are undoubtedly heightening concerns.”
The Present Situation Index, which measures shoppers’ current assessment of economic conditions, dropped to 80.7 in April from 90.6 in March. The Expectations Index, which measures the outlook over the next six months, was little changed at a depressed 50.1, compared to 49.4 in March.
Eroding consumer confidence foreshadows weakening consumer spending, which could further hurt the already deteriorating economy since consumer spending accounts for more than two-thirds of the nation’s economic activity.
Wall Street pulled back after the index showed the fourth straight month of declines in the consumer sentiment reading. In late morning trading, the Dow Jones industrial average fell 53.33, or 0.41 percent, to 12,818.42. Broader markets also fell.
The downbeat news on confidence came as the widely watched Standard & Poor’s/Case-Shiller index showed that housing prices dropped in February at the fastest rate ever, showing that the housing slump is gaining momentum.
The pair of reports were released as the Federal Reserve is expected to cut interest rates by a quarter point on Wednesday, but then hold firm for the rest of the year. The Fed is facing a difficult juggling act of trying to shore up the deteriorating economy without encouraging inflation, a growing concern among Americans.
Franco noted that consumers’ worries about inflation are still rising, and that measure now matches the all-time high reached in the aftermath of Hurricane Katrina in the fall of 2005 when gas and oil prices soared after the hurricane and other storms devastated New Orleans and shut down a large chunk of the nation’s oil refineries.
She added that the percentage of respondents surveyed who intended to take a vacation over the next six months has fallen to a 30-year-low, another indications that consumers are turning more frugal.
The dismal reading is another blow to retailers, which have struggled with a spending malaise that has worsened in recent months. Shoppers are being confronted with a number of economic problems as soaring gas and food bills are outpacing meager wage gains. Consumers are also faced with an escalating credit crisis and slumping housing values.
A big worry is the employment market, which has been shedding jobs in recent months. The Labor Department is expected to show another loss of 65,000 when it releases its April report Friday; that follows a 80,000 job loss in March. Analysts also estimate that the unemployment rate will remain at 5.1 percent.
Consumers’ current appraisal of the labor market was more negative in April. The percentage of those who said jobs are “hard to get” rose to 27.9 percent from 24.5 percent, while those claiming jobs are “plentiful” declined to 16.6 percent from 19.2 percent.
Their job outlook was mixed. Those expecting fewer jobs in the months ahead increased to 32.8 percent from 29.3 percent, while those anticipating more jobs increased to 9.0 percent from 8.0 percent. The proportion of consumers expecting their incomes to increase declined to 15.1 percent from 16.1 percent.
Meanwhile, money from the government’s economic stimulus plan have begun dropping into bank accounts — but with rising gas and groceries bills, early indications suggest that shoppers will focus on catching up on basics like meat or eggs, instead of buying a new TV or clothes. That means that grocery stores and discounters could be the few beneficiaries in the retail world of the stimulus plan.
The Consumer Confidence report is derived from responses through April 22 of a representative sample of 5,000 U.S. households. It has a margin of error of plus or minus 2.5 percentage points.