Consumer Confidence Falls Unexpectedly in May

Americans are losing faith that the economy will keep improving, according to a monthly survey.

The Conference Board's Consumer Confidence Index fell to a six-month low of 60.8 from a revised 66 in April, a sign of the toll that high gas prices, a choppy job outlook and a moribund housing market are taking on people's psyches. Economists had expected an increase to 67.

"Consumers are considerably more apprehensive about future business and labor market conditions as well as their income prospects," said Lynn Franco, director of The Conference Board Consumer Research Center. She said fears of inflation that had eased in April picked up again in May.

The index, released Tuesday, is still far from the reading of 90 that indicates a healthy economy. It hasn't approached that level since the recession began in December 2007.

The results paint a different picture than earlier this year, when many hoped the economic recovery was gaining steam. In February, consumer confidence hit a three-year high. But since then, consumers have started paying more for food and gasoline and are seeing a "double dip" in the housing market.

Part of the problem in May was that the confidence survey's cutoff of May 18 did not give consumers enough time to react to falling gas prices, which peaked early in the month, IHS Global Insight Economist Chris Christopher said.

"We expect consumer confidence to pick up next month because those respondents will be able to show appreciation for falling gasoline prices," he added.

Still, gasoline isn't consumers' only worry, said Moody's Chief Economist John Lonski.

"Expectations of higher prices coupled with expectations of lower income makes for a more anxious consumer," he said. "The takeaway here is employment and income are not growing rapidly enough to sustain an extended stay by rapid inflation."

Economists monitor confidence because consumer spending, including big-ticket items such as housing and health care, accounts for about 70 percent of U.S. economic activity and is critical for a strong economy. A more troubled outlook raises the risk that people will pull back on spending.

Food makers have raised prices to offset sharply higher commodity costs, and that's putting pressure on household budgets, particularly for middle- to lower-income people. Retail gasoline prices peaked at a national average of about $3.98 on May 5, according to auto club AAA, Wright Express and Oil Price Information Service, but gas prices still remain stubbornly high. The consumer confidence survey ran from May 1-18.

Real estate also remains depressed. Home prices fell nationwide for the eighth straight month, according to the Standard & Poor's/Case-Shiller 20-city index released Tuesday. Home prices in major areas have reached their lowest level since the U.S. housing bubble burst in 2006, stymied by foreclosures, a surplus of unsold homes and a reluctance to buy into a falling market.

This month's report marked a "double dip in home prices across much of the nation," said David Blitzer, chairman of the Index Committee at Standard & Poor's.

And the job market remains sluggish. A Labor Department report last week said more people applied for unemployment benefits last week, the first increase in three weeks.

The number of Americans seeking unemployment benefits rose by 10,000 to a seasonally adjusted 424,000. That's above the 375,000 level consistent with sustainable job growth. They peaked at 659,000 during the recession.

Consumers' opinion about current conditions declined only slightly. Their expectations for the next six months fell more. The number of people expecting jobs to grow in the next six months declined, and the number of people expecting fewer jobs during the same period increased.

Elizabeth Castner, who just finished her freshman year at Brown University, said she managed to line up a paid research internship for the summer, but many of her classmates weren't so lucky and have struggled to find work.

"You spend a ton on this education that's supposed to get you really far," said Castner, 19 and a biochemistry major. "And when you get out, it's tough to find work, or work that you love doing."

AP Retail Writer Christina Rexrode contributed to this report from New York.

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Here's the best part about this article...'Unexpectedly', to who? Is it the main stream media that at any cost will put a positive spin on this administrations naive economic 'policies'? Is it Bernanke leading us into QE3? How about Treasury printing money so fast that the value, inherent, and stature of the greenback is falling...geometrically...across the globe. If anyone is surprised that consumer confidence fell, again, they are living in a cave...or watching MSNBC. When you watch rioting in the streets of Greece you are watching the direction this country is headed....

June 29 2011 at 8:26 AM Report abuse rate up rate down Reply

Obama is a crook and a $%#@-up. You can spin this article anyway you want, that's the bottom line.

June 29 2011 at 1:00 AM Report abuse +1 rate up rate down Reply

As I was walking out of the grocery store today, I happened to glance at the ground in front of me, and there lay 2 pennies. I picked them up! For someone whose diet is dictated by what is on sale at my local market, and even then there are many things I cannot buy, those two pennies contributed to a pound of beans. My budget is figured down to the last penny. They keep saying there is no inflation in the USA, yet my property taxes have gone up 17% in the last year, insurance up 13%, electric power up 8% (and the power company has another rate increase under consideration, water up 30%, etc., etc., etc. I have been unable to purchase any clothing for the past two years, nor have I seen a doctor, even though I have some serious medical issues. I used to go to a movie once in awhile, but no more. I am one of the unfortunates trying to live on social security. Now the Republicans are trying to cut social security payments, which I contributed to throughout my working life. Medicare is also under the ax. They call those "entitlements." Why don't they just line all us seniors up aginst a wall and let the bullets fly? The pain of trying to stay alive is becoming more than any bullet. They say we should all spend to help our country recover from the terrible, Wall Street induced, economic conditions. Well, this person cannot spend any more. No one I know can afford to spend more. People in-the-know say inflation is just around the corner; what will that do to my struggle? Buyer confidence, what buyer confidence? And we have a president that caves in to all the Repubican efforts to make the rich even richer. I guess I am more fortunate than some: at least I have a roof over my head. My only recourse is the ballot box. Come November, 2012, you Republicans are gone, gone, gone. How dare you treat people like you are.

June 28 2011 at 10:42 PM Report abuse -1 rate up rate down Reply
1 reply to marjorum's comment

marjorum, if you found two pennies on the ground that merely "contributed to a pound of beans", while you avoid seeing a doctor for two years despite having serious medical issues, yet you spend money on a computer and internet access, I have to imagine you're far too dumb to find the ballot box in November 2012.

June 28 2011 at 10:53 PM Report abuse +1 rate up rate down Reply