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 AAA, Wright Express and Oil Price Information Service, but gas prices remain stubbornly high. The consumer confidence survey ran from May 1-18.