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The Honolulu Advertiser
Posted on: Wednesday, April 30, 2008

Survey shows rising pessimism about economy

By Anne D'Innocenzio
Associated Press Business Writer

Hawaii news photo - The Honolulu Advertiser

A widely watched measure of consumer sentiment hit a five-year low yesterday as high gas prices and weaker job prospects took a toll.

MARK LENNIHAN | Associated Press

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NEW YORK — From soaring gas prices to weaker job prospects, Americans are gloomier about the economy than just before the U.S. invasion of Iraq. They're so anxious that fewer people say they are planning to take a vacation than in 30 years.

And those are worrying signs for the already deteriorating economy, since eroding consumer confidence foreshadows weaker spending.

A widely watched measure of sentiment dropped to a five-year low in April, the fourth straight month of declines. The Conference Board said yesterday that its Consumer Confidence Index fell to 62.3 in April, down from a revised 65.9 last month and 76.4 in February.

That was in line with the expectations of Wall Street economists, but leaves the index at its weakest point since it registered 61.4 in March 2003, ahead of the Iraq invasion.

"There isn't a lot for the consumers to be optimistic about," said Gary Thayer, senior economist at Wachovia Securities.

Economists closely watch sentiment readings since consumer spending accounts for more than two-thirds of the nation's economic activity.

Meanwhile, investors on Wall Street acted cautiously ahead of the Federal Reserve's interest rate decision today. The Fed, trying to shore up the deteriorating economy without encouraging inflation, is expected to cut its key rate by a quarter of a point, then hold firm for the rest of the year.

According to the Conference Board, the index that measures shoppers' current assessment of economic conditions dropped to 80.7 in April from 90.6 in March. The index that gauges their outlook over the next six months was little changed at 50.1, compared to 49.4 in March.

"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," said Lynn Franco, director of the Conference Board Consumer Research Center. "And not only are lackluster business and job conditions eroding confidence, but rising gasoline prices are undoubtedly heightening concerns."

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 autumn 2005 when gas and oil prices soared after major disruptions to energy supplies.

She added that the percentage of survey respondents who planned to take a vacation in the next six months fell to a 30-year-low — another indication that consumers are being more frugal.

That's also a blow to retailers, which have struggled as shoppers get more careful with their money. Besides soaring gas and food bills, consumers are seeing only meager wage gains, a persistent credit crisis and slumping housing values.

While money from the government's economic stimulus plan has begun dropping into bank accounts, shoppers are expected to focus on catching up on basics like meat and groceries rather than splurging on luxuries.

Thayer said that while the plan will offer some relief, it won't be "a cure-all." He said that consumers need to see gas and food prices drop and a recovery in the job market before their mood improves.

The Conference Board's outlook on the job front was mixed, as both the percentage expecting fewer jobs as well as those anticipating more jobs in the months ahead increased.

The Consumer Confidence report, derived from responses received through April 22 of a representative sample of 5,000 U.S. households, has a margin of error of plus or minus 2.5 percentage points.