Soaring gas prices and weakening job prospects left shoppers gloomier about the economy in May, sending a key barometer of consumer sentiment to its lowest level in almost 16 years.
The New York-based Conference Board said Tuesday that its Consumer Confidence Index dropped to 57.2, down from a revised 62.8 in April. Economists surveyed by Thomson Financial/IFR had expected a reading of 60.
The May reading marks the fifth straight month of decline and is the lowest since the index registered 54.6 in October 1992 when the economy was coming out of a recession.
Economists closely watch sentiment readings since consumer spending accounts for more than two-thirds of the nation’s economic activity.
“Weakening business and job conditions coupled with growing pessimism about the short-term future have further depleted consumers’ confidence in the overall state of the economy,” Lynn Franco, director of the Conference Board’s Consumer Research Center, said in a statement.
Franco said consumers’ worries about inflation, fueled by increasing prices at the gas pump, are now at an “all-time high” and are likely to rise further in the months ahead. She added that based on consumers’ outlook on the economy, she believes there’s little likelihood of a quick turnaround.
Mark Vitner, senior economist with Wachovia Corp., agreed, saying that as “awful as these numbers” look, he doesn’t believe that confidence has bottomed out yet, an ominous sign for consumer spending.
“Higher gasoline is of immediate concern,” Vitner said. “ A lot of the extra money is going toward gas and food.” And he doesn’t see consumer sentiment improving until gas prices start receding.
The Conference Board index that measures shoppers’ current assessment of economic conditions declined to 74.4 in May from 81.9 in April. The index that gauges their outlook over the next six months declined to 45.7 from 50.0 in April.
The downbeat news came as investors received mixed news about the housing market. A closely tracked Standard & Poor’s/Case-Shiller index showed that housing prices dropped at the sharpest rate in two decades during the first quarter, indicating that the housing slump continues to deepen.
The S&P/Case-Shiller national home price index fell 14.1 percent in the first quarter compared with a year earlier, the lowest since its inception in 1988. The quarterly index covers all nine U.S. Census divisions.
But the Commerce Department announced that sales of new homes rose in April for the first time in six months although the unexpected increase still left activity near the lowest level in 17 years.
Sales of new homes rose 3.3 percent in April to a seasonally adjusted annual rate of 526,000 units, the agency said.
Investors have been uneasy about soaring gas prices and its impact on the economy and consumer spending. Gas now costs more than an average of $3.80 per gallon nationally — peaking well north of $4 a gallon in major coastal cities — and is expected to keep following oil higher. Higher prices for gas as well as for food are leaving shoppers with less money to spend on apparel and other non-necessities, depressing sales at mall-base apparel stores and other retailers.
Such mounting economic problems are dampening hopes among retailers and analysts that shoppers will be using their stimulus checks for anything but debt reduction and food and gas.
Analysts are also closely watching the job market, which has been softening in recent months. Job security is key to consumers’ willingness to spend.
According to the Conference Board report, the percentage of consumers surveyed saying jobs are “hard to get” was virtually unchanged at 28 percent from 27.9 percent in April. Those claiming jobs are “plentiful” declined to 16.3 percent from 17.1 percent.
The outlook for the labor market remained pessimistic. The percent of consumers expecting fewer jobs in the months ahead declined moderately to 32.4 percent from 32.9 percnet, while those anticipating more jobs was virtually unchanged at 8.7 percent compared with 8.8 percent in April. The proportion of consumers expecting their incomes to increase declined to 13.4 percent from 15.5.
The Consumer Confidence report, derived from responses received through May 20 of a representative sample of 5,000 U.S. households, has a margin of error of plus or minus 2.5 percentage points.